As filed with the Securities and Exchange Commission on February 28, 2017March 1, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20162018
Commission File No. 000-20570
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
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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 (Address of Registrant's principal executive offices) | | 10011 (Zip Code) |
(212) 314-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Name of exchange on which registered |
| Common Stock, par value $0.001 | | The Nasdaq Stock Market LLC (Nasdaq Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
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 x 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 x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer xý | | Accelerated filer o | | Non-accelerated filer o | | (Do not check if a smallerSmaller reporting
reporting company) company o
| | Emerging growth Smaller reporting company o
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If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of January 27, 2017,February 1, 2019, the following shares of the Registrant's Common Stock were outstanding:
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| Common Stock | | 71,947,12777,986,305 |
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| Class B Common Stock | | 5,789,499 |
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| Total | | 77,736,62683,775,804 |
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The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of June 30, 20162018 was $4,111,134,940.$11,833,394,558. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant are assumed to be affiliates of the Registrant.
Documents Incorporated By Reference:
Portions of the Registrant's proxy statement for its 20172019 Annual Meeting of Stockholders are incorporated by reference into Part III herein.
TABLE OF CONTENTS
PART I
Item 1. Business
OVERVIEW
Who We Are
IAC is a leading mediahas majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish and Internet company comprised of widely known consumer brands, such asOkCupid, and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dictionary.com,Dotdash and The Daily Beast, Investopedia,among many other online businesses.
As used herein, "IAC," the "Company," "we," "our," "us" and Match Group's online dating portfolio, which includes Match, Tinder, PlentyOfFishsimilar terms refer to IAC/InterActiveCorp and OkCupid.
For information regardingits subsidiaries (unless the results of operations of IAC’s segments, as well as their respective contributions to IAC’s consolidated results of operations, see “Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8-Consolidated Financial Statements and Supplementary Data.”context requires otherwise).
All references to “IAC,” the “Company,” “we,” “our” or “us” in this report are to IAC/InterActiveCorp.
Our History
IAC, initially a hybrid media/electronic retailing company, was incorporated in 1986 in Delaware under the name Silver King Broadcasting Company, Inc. After several name changes (first to HSN, Inc., then to USA Networks, Inc., USA Interactive and InterActiveCorp, and finally, to IAC/InterActiveCorp) and the completion of a number of significant corporate transactions over the years, the Company transformed itself into a leading media and Internet company.
From 1997 through 2002, the Companyto 2005, we acquired a controlling interest innumber of e-commerce companies, including Ticketmaster Group, Hotel Reservations Network (later renamed Hotels.com), Expedia.com, Match.com, LendingTree, Hotwire, TripAdvisor and Expedia, as well as acquired Match.com and other smaller e-commerce companies. In 2002, the Company contributed its entertainment assets to Vivendi Universal Entertainment LLLP, a joint venture, and sold its interests in that venture to NBC Universal in 2005.
In 2003, the Company continued to grow its portfolio of e-commerce companies by acquiring all of the shares of Expedia, Hotels.com and Ticketmaster that it did not previously own, together with a number of other e-commerce companies (including LendingTree and Hotwire).AskJeeves.
In 2005, IAC acquired Ask Jeeves, Inc. andwe completed the separation of itsour travel and travel‑related businesses and investments into an independent public company called Expedia, Inc. (now known as Expedia Group, Inc.). In 2008, IACwe separated into five independent, publicly traded companies: IAC, HSN, Inc. (now part of Qurate Retail, Inc.), Interval Leisure Group, Inc. (now part of Marriott Vacations Worldwide Corporation), Ticketmaster (now part of Live Nation, Inc.) and Tree.com, Inc.
In 2009, we sold the European operations of Match.comFrom 2008 to Meetic, a leading European online dating company based in France, in exchange for a 27% interest in Meetic and a €5 million note. In 2010, we exchanged the stock of a wholly-owned subsidiary that held our Evite, Gifts.com and IAC Advertising Solutions businesses and approximately $218 million in cash for substantially all of Liberty Media Corporation’s equity stake in IAC.
In 2011, we increased our ownership stake in Meetic to 81%. In 2012, we acquired About.com.
In 2014, we acquired the remaining publicly traded shares ofcontinued to invest in and acquire e-commerce companies, including Meetic, ValueClick’s “ownedAbout.com (now known as Dotdash), Dictionary.com and operated” website businesses, including Investopedia and PriceRunner, and The Princeton Review.
Investopedia. In 2015, we acquired Plentyoffish Media Inc., a leading provider of subscription-based and ad-supported online personals servicing North America, Europe, Latin America and Australia, for $575 million in cash, and completed the initial public offering of Match Group, Inc.
In 2016 and 2017, we completed the combination of the businesses in our former HomeAdvisor segment with those of Angie’s List, Inc. under a new publicly traded holding company that we control, ANGI Homeservices Inc. ("ANGI Homeservices"), as well as acquired controlling interests in MyHammer Holding AG, HomeStars Inc. and MyBuilder Limited, leading home services platforms in Germany, the United Kingdom and Canada, respectively. Through Vimeo, we acquired VHX, a platform for premium over-the-top (OTT) subscription video channels, as welland Livestream Inc., a leading live video solution.
In 2018, through ANGI Homeservices, we acquired Handy Technologies, Inc., a leading platform in the United States for connecting consumers looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals. We also acquired a controlling interest in MyHammer Holding AG,BlueCrew, an on-demand staffing platform that connects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and moving, data entry and customer service. Lastly, we sold our Dictionary.com business, the leading home services marketplace in Germany,television business of Electus (including Notional) and sold PriceRunner, ASKfmour Felix and ShoeBuy.CityGrid businesses.
EQUITY OWNERSHIP AND VOTE
IAC has outstanding shares of common stock, with one vote per share, and shares of Class B common stock, with ten votes per share and which are convertible into common stock on a share for share basis. As of January 27, 2017, Mr.the date of this report, Barry Diller, IAC’s Chairman and Senior Executive, his spouse Diane(Diane von Furstenberg,Furstenberg) and his stepson Alexander(Alexander von Furstenberg,Furstenberg), collectively beneficially ownedown 5,789,499 shares of IAC Class B common stock and 136,711representing 100% of the outstanding shares of IACClass B common stock. Together with shares of common stock allheld as of which were held in truststhe date of this report by Mr. von Furstenberg (61,685), a trust for the benefit of Mr. Diller and certain members of hisMr. Diller’s family (136,711) and 1,711 shares of IAC common stock held by a private foundation. As of that date, the shares of IAC Class B common stock beneficially owned by Mr. Diller and certain members of his family collectively represented 100% of IAC’s outstanding Class B common stock and, together with the shares of IAC common stock also beneficially owned byfoundation (1,711), these individuals, representedholdings represent approximately 44.7%42.8% of the total outstanding voting power of IAC.IAC (based on the number of shares of common and Class B common stock outstanding on February 1, 2019). As of the date of this report, Mr. Diller also holds 550,0001,050,000 vested options and 750,000250,000 unvested options to purchase IACshares of common stock.
In addition, pursuant to an amended and restated governance agreement between IAC and Mr. Diller, for so long as Mr. Diller serves as IAC’s Chairman and Senior Executive and he beneficially owns (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934)1934, as amended) at least 5,000,000 shares of IAC Class B common stock and/or common stock in which he has a pecuniary interest (including IAC securities beneficially owned by him directly and indirectly through trusts for the benefit of him and certain members of his family), he generally has the right to consent to limited matters in the event that IAC’s ratio of total debt to EBITDA (as defined in the governance agreement) equals or exceeds four to one over a continuous twelve-month period.
As a result of IAC securities beneficially owned by Mr. Diller and certain members of his family, Mr. Diller and these family members are, collectively, currently in a position to influence, subject to our organizational documents and Delaware law, the composition of IAC’s Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions.
DESCRIPTION OF IAC BUSINESSES
Match Group
Overview
Our Match Group segment includesconsists of the datingbusinesses and non-dating businessesoperations of Match Group, Inc. (“("Match Group”Group"), which completed its initial public offering on November 24, 2015. As of December 31, 2016, IAC’s ownership interest and voting interest in Match Group were 82.5% and 97.9%, respectively.
Services
Dating. . Through Match Group, we operate a portfolio of dating business that consists of a portfolio with over 45 brands, available in 42 languages, and offered in over 190 countries, including the following key brands:Tinder, Match, Tinder, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs Twoo, OurTime, BlackPeopleMeet and LoveScout24. We operateHinge, as well as a North America dating business, which includesnumber of other brands, each designed to increase user likelihood of finding a meaningful connection. As of December 31, 2018, IAC’s ownership and voting interests in Match Tinder, PlentyOfFish, OkCupid, our various affinity brandsGroup were 81.1% and other dating businesses operating within the United States and Canada, and an International dating business, which includes Meetic, Pairs, Twoo, the international operations of Tinder and PlentyOfFish and all other dating businesses operating outside of the United States and Canada.97.6%, respectively.
Services
Through the brands within our dating business,Match Group, we are a leading provider of membership-based and ad-supported dating products servicing North America, Western Europeall over the world through applications and many other regions around the world. We provide these services through websites and applications that we own and operate. As of December 31, 2018, there were approximately 7.9 million Average Subscribers to our dating products (calculated by summing the total number of users who purchased one of our subscription-based dating products at the end of each day in the year ended December 31, 2018, divided by the number of calendar days in such year).
Dating is a highly personal endeavor and consumers have a wide variety of preferences that determine what type of dating product they choose. As a result, our strategy focuses on a portfolio approach of various brands in order to reach a broad range of users. Our brands are collectively available in 40 languages to users all over the world. The following is a list of our key brands:
Tinder. Tinder was launched in 2012, and has since risen to scale and popularity faster than any other product in the online dating category with limited marketing spend, growing to over 4.3 million subscribers today. Tinder’s distinctive "right swipe" feature has led to significant adoption among the millennial generation, previously underserved by the online dating category. Tinder employs a freemium model, through which users can enjoy many of the core features of Tinder for free, including limited use of the "swipe right" feature with unlimited communication with other users. However, to enjoy premium features, such as unlimited use of the "swipe right" feature, a Tinder user must subscribe to either Tinder Plus, launched in early 2015, or Tinder Gold, which was launched in late summer 2017. Tinder users and subscribers may also pay for certain premium features, such as Super Likes and Boosts, on a pay-per-use basis.
Match. Match was launched in 1995 and helped create the online dating category. Among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Match) with other subscribers. Additionally, new features, such as Missed Connections, which uses location-based technology to enable users to connect with other users with whom they have crossed paths in the past, engage users into more meaningful connections. Match is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Match relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
PlentyOfFish. PlentyOfFish was launched in 2003 and acquired in October 2015. Similar to Match, among its distinguishing features is the ability to both search profiles and receive algorithmic matches. Similar to Tinder, PlentyOfFish has grown to popularity over the years with very limited marketing spend and also relies on a freemium model. PlentyOfFish has broad appeal in the central United States, Canada, the United Kingdom and a number of other international markets.
Meetic. Meetic, a leading European online dating brand based in France, was launched in 2001. Similar to Match, among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Meetic) with other subscribers and non-subscribers from time to time. Also, similar to Match, Meetic is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Meetic relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
OkCupid. OkCupid was launched in 2004, and has attracted users through a mathematical and Q&A approach to the online dating category. Similar to Tinder and PlentyOfFish, OkCupid has grown in popularity over the years without significant marketing spend and also relies on a freemium model. OkCupid has a loyal and highly educated user base predominately located in major cities in the United States and the United Kingdom.
OurTime. OurTime is the largest brand within our affinity-oriented brands. OurTime is the largest community of singles over age 50 of any dating product.
Pairs. Pairs was launched in 2012 and acquired in May 2015. Pairs is a leading provider of dating products in Japan, with a strong presence in Taiwan and a growing presence in certain other Asian countries. Pairs is a dating app that was specifically designed to address social barriers generally associated with the use of dating products in Asian countries, particularly Japan.
Hinge. Hinge was launched in 2012 and, following a series of investments, Match took a controlling stake in Hinge in June 2018 and purchased all of the remaining outstanding equity in December 2018. Hinge is a mobile-only experience and employs a freemium model. Hinge focuses on users with a high level of intent to enter into a relationship and its product is designed to reinforce that approach.
All of our dating products enable users to establish a profile and review the profiles of other people’s profilesusers without charge. Each product also offers additional features, some of which are free and some of which require paymentare paid, depending on the particular product. In general, access to premium features requires a paid membership,subscription, which is typically offered in packages (primarily ranging from one month to six months), depending on the product and circumstance. Prices differ meaningfully within a given brand by the duration of membershipsubscription purchased, by the bundle of paid features that a user chooses to access and by whether or not a customersubscriber is taking advantage of any special offers. In addition to paid memberships,subscriptions, many of our dating products offer users certain features, such as the ability to promote themselves for a given period of time or to review certain profiles without any signaling to other members,users, and these features are offered on a pay‑per‑use basis. The precise mix of paid and premium features is established over time on a brand‑by‑brand basis and is constantly subject to iteration and evolution.
Non-Dating. In addition to our dating business, we also operate a non‑dating business through Match Group’s ownership of The Princeton Review, which provides a variety of educational test preparation, academic tutoring and college counseling services. The Princeton Review includes Tutor.com (acquired in 2012) and The Princeton Review (acquired in 2014). In January 2017, Revenue
Match Group entered into a definitive agreement to sell The Princeton Review to ST Unitas, a global education technology company. The transaction is expected to close in the first half of 2017.
Revenue
The substantial majority of the Match Group segment’s revenue is attributable to the dating business. Dating business revenue is substantiallyprimarily derived directly from users in the form of recurring membership fees for subscription-based online personals and related services.subscriptions. Revenue is also earned from online advertising, the purchase of à la carte features and offline events. Non-dating revenue consists primarily of fees received directly from students for in-person and online test preparation classes, access to online test preparation materials and individual tutoring services.
Marketing
WeCertain of our brands attract the majority of their users of our dating products through word‑of‑mouthword-of-mouth and other free channels. In addition, many of ourOur other brands rely on paid customeruser acquisition efforts for a significant percentage of their users. Our online marketing activities generally consist of purchasingsocial media advertising, banner and other display advertising, search engine marketing, e-mail campaigns, andvideo advertising, business development or partnership deals.deals and hiring influencers to promote our dating products. Our offline marketing activities generally consist of television advertising and related public relations efforts, as well as events.
Competition
The dating industry is competitive and has no single, dominant brand globally. We compete with a number of other companies that provide similar dating and matchmaking products.
In addition to other online dating brands, we compete indirectly with social media platforms and offline dating services, such as in‑person matchmakers, and social media platforms.matchmakers. Arguably, our biggest competition in the case of our dating business comes from the traditional ways that people meet each other and the choices some people make to not utilize dating products or services.
We believe that our ability to compete successfully in the case of our dating business will depend primarily upon the following factors:
our ability to continue to increase consumer acceptance and adoption of online dating products;products, particularly in emerging markets and other parts of the world where the stigma is only beginning to erode;
continued growth in Internet access and smart phone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Match Group’sGroup brands;
the breadth and depth of Match Group’sGroup active user communities of users relative to those of its competitors;
our ability to evolve our dating products in response to competitors’competitor offerings, user requirements, social trends, the ever-evolving technological landscape and the technological landscape;ever-changing regulatory landscape (in particular, as it relates to the regulation of online platforms);
our ability to efficiently acquire new users for our dating products;
our ability to continue to optimize our monetization strategies; and
the design and functionality of our dating products.
Lastly, since a large portion of online dating customers use multiple dating products over a given period of time, either concurrently or sequentially, we believe our broad portfolio of dating brands is a competitive advantage.
HomeAdvisorANGI Homeservices
Overview
HomeAdvisor is a leading globalThrough the ANGI Homeservices portfolio of digital home services digital marketplace that helpsbrands, including HomeAdvisor®, Angie’s List® and Handy, we connect consumers withmillions of homeowners to home service professionals, collect reviews and allow homeowners to research, match and connect on-demand to the largest network of service professionals online, through our mobile apps or by voice assistants.
In addition to its market-leading U.S. operations, ANGI owns leading home services online marketplaces in North America,France (Travaux), Germany (MyHammer), Netherlands (Werkspot), United Kingdom (MyBuilder), Canada (HomeStars) and Italy (Instapro), as well as operations in France,Austria (MyHammer). As of December 31, 2018, IAC’s economic and voting interests in ANGI Homeservices were 83.9% and 98.1%, respectively.
Our ANGI Homeservices segment consists of the NetherlandsNorth American (United States and Italy under various brands. In November 2016,Canada) and European businesses and operations of ANGI Homeservices, a publicly traded holding company that was formed to facilitate the combination of the businesses within our former HomeAdvisor segment with Angie’s List, Inc. ("Angie's List"), which transaction was completed on September 29, 2017 (the "Combination"). ANGI Homeservices acquired Handy Technologies, Inc. ("Handy"), a controlling interestleading platform in MyHammer Holding AG, the leadingUnited States for connecting individuals looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals, in October 2018.
Services
Overview. The HomeAdvisor digital marketplace service (formerly known as our HomeAdvisor domestic business ("HomeAdvisor")) connects consumers with service professionals nationwide for home repair, maintenance and improvement projects. HomeAdvisor provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals, as well as instantly book appointments online. HomeAdvisor also connects consumers with service professionals instantly by telephone, as well as offers several home services-related resources, such as cost guides for different types of home services marketplaceprojects. Handy connects consumers looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals.
Together, we refer to the HomeAdvisor and Handy businesses in Germany.the United States as the "Marketplace." We provide all Marketplace matching services, related tools and directories to consumers free of charge.
As of December 31, 2016, HomeAdvisor’s domestic2018, the Marketplace had a network of home servicesapproximately 214,000 service professionals, consistedeach of approximately 143,000 payingwhom had an active network membership and/or paid for consumer matches (in the case of HomeAdvisor service professionals) or completed a job sourced through the Handy platform (in the case of Handy service professionals) in December 2018. Collectively, these service professionals in the United States providingprovided services in more than 500 categories and 400 discrete markets in the United States, ranging from cleaning and installation services to simple home repairs toand larger home remodeling projects. HomeAdvisorThe Marketplace generated approximately 13.223.5 million domestic service requests from homeownersover 13 million households during the year ended December 31, 2016.2018. Service requests consisted of fully completed customer service requests submitted to HomeAdvisor also operates Felix,and completed jobs sourced through the Handy platform.
Angie’s List connects consumers with service professionals for local services through a pay-per-call advertisingnationwide online directory of service CraftJack, a lead generationprofessionals in over 700 service categories, as well as provides consumers with valuable tools, services and mHelpDesk, a providercontent (including verified reviews), to help them research, shop and hire for local services. We provide consumers with access to the Angie's List nationwide directory and related basic tools and services free of cloud based field service software for small to mid-size businesses.
Consumer Servicescharge.
MatchingMarketplace Consumer Services. WhenConsumers can submit a consumer submitsservice request for a requestservice professional directly through HomeAdvisor platforms, as well as indirectly through certain paths on some of our other branded platforms and various third-party affiliate platforms. In the case of service requests submitted through HomeAdvisor marketplace, weand third-party affiliate platforms, consumers are generally match that consumermatched (through our proprietary algorithms) with up to four home servicesservice professionals from ourthe HomeAdvisor network of service professionals based on several factors, including the type of services desired, location and the consumer’s location. Consumers can then review profilesnumber of home servicesservice professionals available to fulfill the request. In the case of service requests submitted through our other branded platforms, consumers are generally matched (through our proprietary algorithms) with a combination of HomeAdvisor service professionals and service professionals from the relevant branded platform (as and if available for the given service request).
Service professionals may contact consumers with whom they have been matched directly and consumers can review profiles, ratings and reviews of presented service professionals and select the service professional whom they believe best meets their specific needs. In addition to (or in lieu of) submitting a request through our marketplace, consumers can also search, select and contact home service professionals directly through our online directory. In all cases, the consumer isConsumers are under no obligation to work with homeany service professionalsprofessional(s) referred by or found through HomeAdvisor.any of our branded platforms or third-party affiliate platforms.
On-Demand Services. HomeAdvisor also provides twoseveral on-demand services, that complement its matching services:including Instant Booking and Instant Connect (patent-pending). Through Instant Booking, consumers can schedule appointments for select home tasks on-demandservices with a pre-screened home servicesHomeAdvisor service professional instantly across our platforms (website or mobile application), and throughcertain HomeAdvisor platforms. Through Instant Connect, consumers can connect with a home servicesHomeAdvisor service professional instantly via phone.
Other Services. by phone, as well as through digital voice assistant platforms. In certain markets, HomeAdvisor also provides Same Day Service and Next Day Service for certain home services. In addition to matching and on-demand services, consumers can access our free,the online HomeAdvisor True Cost Guide, which provides project cost information for more than 400 project types on a local basis,nationwide, as well as an onlinea library of home services‑related resources, which primarily includes articles about home improvement, repairservices-related content.
Through the Handy platform, consumers can select the service they need and maintenance, toolsspecify when (date and time) they want the service to assistbe provided; this information is then used to match consumers with Handy service professionals. In certain markets, consumers can also submit a request to book a specific Handy service professional for a given job. In both cases, the research, planningservice is then scheduled and management of their projectspaid for directly through the Handy platform. In addition, consumers who purchase furniture, electronics, appliances and general adviceother home-related items from select third-party retail partners online (and in certain markets, in store) can simultaneously purchase assembly, installation and other related services to be fulfilled by Handy service professionals. The service is then paid for working with home services professionals.
directly through the applicable third-party retail partner platform and scheduled through the Handy platform. Consumers can also accesssearch for service professionals by zip code on the Handy platform and contact them through the Handy platform.
Marketplace Service Professional Services. We primarily offer and sell HomeAdvisor memberships and related products and services and tools on iOS and Android devices (including the Apple Watch®) andto service professionals through HomeAdvisor's mobile application, as well as access its Instant Connect service through Amazon's Echo product.
Subscription Services for Home Services Professionals
Home services professionals who are new toour sales force (described below). The basic HomeAdvisor must sign up for an annual membership package. Our basic annual membership package includes membership in ourthe HomeAdvisor network of home servicesservice professionals, as well as access to consumer matches through HomeAdvisor platforms and a listing in ourthe HomeAdvisor online directory and matchescertain other affiliate directories, among other benefits. In addition to the membership subscription fee, HomeAdvisor service professionals pay fees for consumer matches. In the case of Handy, we provide service professionals who self-register on the Handy platform with access to a pool of consumers seeking service professionals. When a service is scheduled through the marketplace.Handy platform, the related payment is processed and we charge the service professional a
booking fee. We also offer certain other subscription products, primarily to HomeAdvisor service professionals, through mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses, as well as custom website development and hosting services.
Angie's List Consumer Services. Through most Angie’s List platforms, consumers can currently register and search for a service professional in the Angie’s List nationwide online directory and/or be matched with a service professional. Consumers who register can access ratings and reviews and search for service professionals, as well as access certain promotions. For a fee, we offer two premium membership packages, which include varying degrees of online and phone support, access to exclusive promotions and features and the award-winning Angie’s Listprint magazine.
Angie's List Service Professional Services. Angie’s List provides service professionals with a variety of services and tools, including certification. Generally, service professionals with an overall member grade below a "B" are not eligible for certification. Service professionals must satisfy certain criteria for certification, including retaining the requisite member grade, passing certain criminal background checks and attesting to proper licensure requirements. Once eligibility criteria are satisfied, service professionals must purchase term-based advertising from us to obtain certification. As of December 31, 2016,2018, we had approximately 93% of36,000 certified service professionals under contract for advertising.
Certified service professionals rotate among the approximately 143,000 domestic paying home servicesfirst service professionals listed in directory search results for an applicable category, with non-certified service professionals appearing below certified service professionals in directory search results. Certified service professionals can also provide exclusive promotions to members. When consumers choose to be matched with a service professional, our proprietary algorithms will determine where a given service professional appears within our network had purchased a membership package. We also offer subscription products that include custom website and mobile development and hosting services, as well as integration with mHelpDesk.
related results.
Revenue
The HomeAdvisor segment’sANGI Homeservices revenue is primarily derived fromfrom: (i) consumer connection revenue, which consists of fees paid by home servicesHomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscription fees and fees for website hosting services. Fees for matches varypaid by HomeAdvisor service professionals. Consumer connection revenue varies based upon several factors, including the service requested, typeproduct experience offered and geographic location of matchservice.
Revenue is also derived from: (i) sales of time-based website, mobile and where thecall center advertising to service is provided.professionals and (ii) membership subscription fees from consumers.
Marketing
We market ourANGI Homeservices products and services are marketed to consumers primarily through digital marketing (primarily paid search engine marketing, display advertising and third-party affiliate agreements) and traditional offline marketing (national television advertising,and radio campaigns), as well as through search engine marketing and affiliate agreements with third parties.e-mail. Pursuant to thesethird-party affiliate agreements, third parties agree to advertise and promote ourHomeAdvisor products and services and(and those of our home services professionalsHomeAdvisor service professionals) on their websites and we agree to pay themplatforms. In exchange for these efforts, these third parties are paid a fixed fee when visitors from their websitesplatforms click through and submit a valid service request through our website (onHomeAdvisor, or when visitors submit a cost-per-acquisition basis) or click throughvalid service request on the affiliate platform and the affiliate transmits the service request to our website (on a cost-per-click basis). WeHomeAdvisor. ANGI Homeservices products and services are also market our servicesmarketed to consumers through e-mails, digital display advertisements,relationships with select third-party retail partners and, to a lesser extent, through partnerships with other contextually related websites and to a lesser extent, through direct mail and radio advertising. mail.
We market our subscription packages and related products and services to home servicesservice professionals primarily through our Golden, Colorado based sales force, as well as through sales forces in Denver and Colorado Springs, Colorado, Lenexa, Kansas, New York, New York, Indianapolis, Indiana and Chicago, Illinois. We also market these products and services, together with our various directories, through paid search engine marketing, digital media advertising and direct relationships with trade associations.associations and manufacturers. We market term-based advertising and related products to service professionals primarily through our Indianapolis based sales force.
Competition
We competeThe home services industry is highly competitive and fragmented, and in many important respects, local in nature. ANGI Homeservices competes with, home services-related lead generation services, as well as Internetamong others: (i) search engines and online directories, (ii) home and/or local services-related platforms, (iii) providers of consumer ratings, reviews and with otherreferrals and (iv) various forms of traditional offline advertising (primarily local advertising,in nature), including radio, direct marketing campaigns, yellow pages, newspapers and other offline directories. We also compete with local and national retailers of home improvement products that offer or promote installation services. We believe our biggest competition comes from the traditional methods most people currently use to find service professionals, which is by word-of-mouth and through referrals.
We believe that our ability to compete successfully will depend primarily upon the following factors:
the size, quality, (as determined, in part, by reference to our pre-screening efforts and customer ratings and reviews), diversity and stability of our network of home servicesservice professionals and the qualitybreadth of the services they provide;
our continued ability to deliver service requests that convert into revenue for our network of home services professionals in a cost-effective manner;
whether our subscription products resonate with (and provide value to) our home services professionals;online directory listings;
the functionality of our websites and mobile applications and the attractiveness of their features and our products and services generally to consumers and home servicesservice professionals, as well as our continued ability to introduce new products and services that resonate with consumers and home services professionals; andservice professionals generally;
our ability to continue to build and maintain awareness of, (andand trust in and loyalty to)to, our various brands, particularly our Angie’s List, HomeAdvisor and Handy brands;
our ability to consistently generate service requests and jobs through the HomeAdvisor brand.Marketplace and leads through our online directories that convert into revenue for our service professionals in a cost-effective manner; and
the quality and consistency of our service professional pre-screening processes and ongoing quality control efforts, as well as the reliability, depth and timeliness of customer ratings and reviews.
VideoVimeo
Overview
Our Video segment consists primarily of Vimeo, Electus, CollegeHumor, Notional, IAC Films and Daily Burn.
Vimeo
Services.Vimeo operates a global video sharing platform for creatorscreative professionals, marketers and enterprises to connect with their audiences. Throughaudiences, customers and employees. Vimeo we offer video creators simple, professional grade toolsprovides cloud-based software products to share, manage,stream, host, distribute and monetize contentvideos online and across devices, as well as premium video tools on a subscription basis. Vimeo also sells live streaming accessories.
Platform
Through Vimeo’s Platform business, we provide viewers with a clutter-free environment to watch content across a variety of Internet-enabled devices, including mobile devicesbasic video hosting and connected television platforms. We offer these basic servicessharing capabilities free of charge.
We also offer premium services through subscription products, which provide paying subscribers with various levelspackages of premium features, including:video tools via a Software-as-a-Service ("SaaS") model on a subscription basis (monthly or annual). Package capabilities may include additional video storage space, advancedand high quality live streaming capabilities, robust video privacy controls, extensive video player customization options, team collaboration and management tools, review and workflow tools, e-maildetailed analytics, lead generation premiumand marketing tools, priority support and the ability to sell videos and OTT video channels (through VHX, a platform for premium OTT subscription video channels that we acquired in 2016), directly to consumers.consumers in a customized viewing experience, with the precise mix of capabilities dependent upon the tier of package purchased. As of December 31, 2016, 2018, there were approximately 952,000 subscribers to Vimeo’s SaaS offering.
Vimeo had approximately 768,000 paidalso operates two marketplaces for buying and selling videos, the Vimeo on Demand store and the Vimeo Stock store. Through the Vimeo on Demand store, subscribers may offer their videos for sale to their audiences. Through the Vimeo Stock store, Vimeo offers stock video footage from certain licensors. In both cases, Vimeo earns fees from the sale of video content.
Hardware
Through Livestream, we sell a number of live streaming accessories, including hardware devices for capturing, broadcasting and reached over 240 million unique users worldwide.
editing live video and the Mevo® camera, a pocket-sized device that allows broadcasters to professionally stream and edit live video. We also provide on-demand services through which video creators can sell videos they create to consumers. As of December 31, 2016, our on-demand services featured over 60,000 titles in a variety of genres fromhardware equipment for customers with more than 15,000 creators and sold titles to more than 2.8 million consumers. Titles are added to our Video On Demand marketplace by video creators through direct uploads to www.vimeo.com and through negotiated agreements with content owners, producers and distributors to acquire titles.sophisticated live
We also provide tools
streaming needs, such as 4K encoding, multi-camera switching and on-screen graphics. Our hardware devices enable customers to stream video of their events through whichVimeo software, as well as to multiple third-party platforms simultaneously. Subscribers to our SaaS offering can host, distribute and monetize live video owners and distributors can offer branded, over-the-top (OTT) video channels directly to consumers. Video owners and distributors can offer their content on a subscription or à la carte basisedited with these hardware devices through applications for all major mobile and set top boxVimeo platforms.
Marketing.Marketing and Sales
We market Vimeo’sVimeo services primarily through online marketing efforts, including paid search engine marketing, social media, e-mail campaigns, display advertising and affiliate marketing. We also market these products and services through offline marketing efforts, including outdoor advertising, offline events and product integrations, as well as directly through offline advertisingour self-serve websites and upgrade channels onapps. Vimeo services and products can be purchased directly through our self-serve websites and apps, the Vimeo platform (websiteApple App Store and mobile application).Google Play Store and our sales force, and in the case of livestreaming accessories only, through a network of retailers and distributors.
Revenue
Revenue.Vimeo revenue is derived primarily from annual and monthly SaaS subscription fees paid by creators for premium capabilities and, to a lesser extent, from video sales of live streaming hardware, software and OTT service fees.professional services.
Competition.Competition
Vimeo competes with a variety of online video providers, including those that serveplatforms, from free, ad-based video creatorssharing services directed at consumers to niche workflow and consumers through advertising-supported, subscription or transactional fee models.distribution solutions directed at professionals and enterprises. We believe that Vimeo differentiates itself from its competitors by offering a customizable,providing an ad-free, high definition video player, proprietary uploadingquality user experience and encoding infrastructureone-stop professional solution that is easy to use and a clutter-free viewing experience (advertisements are not placed in video streams on www.vimeo.com). affordable.
We believe that our ability to compete successfully will depend primarily on:upon the following factors:
the quality of our technology platform, video tools and the viewing and production experiences we provide consumers and video creators and distributors across Internet-connected devices (desktop, mobile and television);user experience;
whether our SaaS subscription offering and OTT offeringslive streaming accessories resonate with video creators and distributors;
our ability to attract high-quality content, both for free and fee-based viewing;consumers;
the accessibilitycontinued ability of our videos onusers to distribute Vimeo-hosted content across third-party platforms and the prominence and visibility of such content within search enginesengine results and social media platforms;
the recognition and strength of the Vimeo brand relative to those of competitor brands;
our competitors;ability to host and stream high-bandwidth video on a scalable platform;
our ability to retain existing subscribers by continuing to provide a compelling value proposition and convert non-paying users into subscribers; and
our ability to drive new subscribers and viewersvisitors to our platform through various forms of direct advertising.marketing.
Services. Through Electus, we provide production Dotdash
Overview
Built upon more than 20 years of data and producer services for both unscriptedexpert-written content, Dotdash is a portfolio of digital brands providing expert information and scripted television, feature film and digitalinspiration in select vertical content primarily for initial sale and distribution in the United States. Our content is distributed on a wide range of platforms, including broadcast television, premium and basic cable television, subscription-based and ad-supported video-on-demand services and through theatrical releases and other outlets. We sell and distribute Electus programming and other content, together with programming and other content developed by third parties, outsidecategories to over 90 million users each month.
Content
As of the United States through Electus International. We also work with various brands to integrate their products into, as well as sponsor, Electus content throughdate of this report, our Content Marketing team.
In addition, we operate Electus Digital, which consistsDotdash business consist of the following brands:
the Verywell family of brands, a leading online health publisher and resource where users can explore a full spectrum of health and wellness topics, from comprehensive information on medical conditions to advice on fitness, nutrition, mental health, pregnancy and more;
the Spruce family of brands, a leading online lifestyle property covering home decor, home repair, recipes, cooking techniques, pets and crafts where users can find practical, real-life tips and inspiration to help them create their best home;
the Balance family of brands, a leading online property covering personal finance, career and small business topics that makes personal finance easy to understand and where users can find clear, practical and straightforward personal financial advice;
Investopedia, an online resource for investment and personal finance education and information;
Lifewire, a leading online technology information property that provides expert-created, real-world technology content with informative visuals and straightforward instruction that helps users fix tech gadgets, learn how to perform specific tech tasks and find the best tech products;
TripSavvy, a travel website written by real experts (not anonymous reviewers) where users can find useful travel advice and inspiration from destinations around the world;
ThoughtCo, a leading online information and reference site with a focus on expert-created education content where users can find answers to questions and information regarding a broad range of disciplines, including science, technology and math, the humanities and the arts, music and recreation; and
two recently acquired websites, Byrdie, a leading beauty website covering beauty tips, style, product reviews and properties: CollegeHumor.com, Dorkly.commakeup trends, and WatchLOUD.com; YouTube channels WatchLOUD, NuevonMyDomaine, a lifestyle website where users can find fresh recipes, smart career tips and Hungry;insider travel guides that awaken a life well lived.
Through these brands, we provide original and Big Breakfast (a production company). The various brands and businesses within Electus Digital specializeengaging digital content in creating content for digital, television and feature film platforms across a variety of genres, as well as provide brandedformats, including articles, illustrations, videos and third party creative production services. Through Electus,images. We work with hundreds of experts in their respective fields to create the content that we also operate Notional.publish, including doctors, chefs, certified financial advisors and others.
Revenue. ElectusRevenue
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is derivedgenerated primarily from media productionthrough digital display advertisements sold directly and distribution and display advertising.through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
Marketing
Marketing.We do not engage in any formal marketing efforts in the case of our production and executive producer services, instead relying on referrals and the quality of our services and projects. For content distribution, we rely on our sales force, referrals and the quality of our services and projects, and for international distribution only, attendance at industry trade shows. In addition, the platforms to which we license our content for distribution market our content through their own independent marketing efforts. Electus Digital attractsa variety of digital distribution channels, including search engines, social media platforms and direct navigation programs. Users who engage with Dotdash brands are invited to share Dotdash content and sign up for our e-mail newsletters.
Competition
Dotdash competes with a wide variety of parties in connection with our efforts to attract and retain users and audienceadvertisers. Competitors primarily throughinclude other online publishers and destination websites with brands in similar vertical content categories and social media, search enginechannels.
Some of our current competitors have longer operating histories, greater brand recognition, larger user bases and/or greater financial, technical or marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the development and affiliate agreements.promotion of their content, which could result in greater market acceptance of their content relative to our content.
Competition. We compete with entertainment studios, production companies, distribution companies, creative agencies and content websites. We believe that ourthe ability of Dotdash to compete successfully will depend primarily upon the following factors:
the quality and diversity of our content and the third parties to whom we license our content, as well as the quality of the services provided by licenseescontent and features on our websites, relative to those of our content;competitors;
our continued ability to successfully create newor acquire content that resonates with licensees(or the rights thereto) in a cost-effective manner;
the relevance and viewers;authority of the content featured on our websites; and
our ability to sell integration and sponsorship opportunities forsuccessfully drive visitors to our content.portfolio of digital brands in a cost-effective manner.
Daily Burn
Services. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms, including iOS, Android, Roku and other Internet-enabled television platforms.
Revenue. Daily Burn’s revenue consists primarily of subscription fees.
Marketing. We market our streaming fitness and workout videos primarily through television advertising, advertising on ad-supported video-on-demand services and content platforms and search engine marketing.
Competition. The fitness and workout market is highly competitive and barriers to entry, particularly in the case of online platforms, are minimal. We compete primarily with other streaming fitness and workout platforms and, to a lesser extent, fitness and workout DVDs.
Applications
Overview
Our Applications segment consists of:
Consumer, which includesof our direct-to-consumer downloadable desktop applications, Apalon, which housesDesktop business and Mosaic Group, our mobile applications,business. Through these businesses, we are a leading provider of global, advertising-driven desktop and SlimWare; andsubscription-based mobile applications.
Partnerships, which includes our business-to-business partnership operations.
ConsumerDesktop
Through our ConsumerDesktop business, we develop, marketown and distributeoperate a varietyportfolio of applications, including desktop applications that are tailored to a number of specific online uses and through which users can access search services. The majority of our applications are browser extensions, which consist of a browser tab page and related technology that together enable users to run search queries directly from their web browsers. Many of our browser extensions are coupled with other applications that we have developed that provide users with access to various formsa wide variety of online content, tools and software capabilities. These applications include:services. Aligned around the common theme of making the lives of our users easier in just a few clicks, these products span a myriad of categories, including: FromDoctoPDFFromDocToPDF, through which users can convert documents from one format into various others and share them across multiple platforms;others; MapsGalaxy, through which users can access accurate street maps, local traffic conditions and aerial and satellite street views; and WeatherBlinkGetFormsOnline,, through which users can access local weather conditionsessential forms (tax, healthcare, travel and satellite radar maps directly from their web browsers. Other applications target users with a special or passionate interest in select vertical categories (such as recipes, entertainment and religion, among others) ormore) online. We provide users who download our desktop browser applications with particular reference information or access to specific capabilities (suchnew tab search services, as internet speed and package tracking, among others).well as the option of default browser search services. We distribute our utilitydesktop browser applications directly to consumers free of charge.charge on an opt-in basis directly through direct to consumer (primarily the Chrome Web Store) and partnership distribution channels.
We also develop, distribute and provide a suite of Slimware-branded desktop-support software and services, including: DriverUpdate®, which scans, identifies and completes required updates to device-to-PC communicating drivers; SlimCleaner® software, which cleans, updates, secures and optimizes computer operating systems; and Slimware® Premium Support, a subscription service that provides subscribers with 24/7 access to remote tech support for their computers, mobile phones and other digital devices.
Mosaic Group
Through Mosaic Group, we are a leading provider of global subscription mobile applications. Mosaic Group consists of the following businesses that we own and operate: Apalon, iTranslate (acquired in March 2018), TelTech (acquired in October 2018) and Daily Burn.
Apalon is an award-winninga leading mobile development company with one of the largest and most popular application portfolios worldwide. iTranslate develops and distributes applications that enable users to read, write, speak and learn foreign languages anywhere in the world. TelTech develops and distributes unique and innovative mobile communications applications that help protect consumer privacy. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms (including iOS, Android, Roku and other Internet-enabled television platforms).
Through Mosaic Group, collectively, we operated 39 branded mobile applications in 28 languages across 173 countries as of the date of this report. Our branded mobile applications consist of applications spanning a variety of categories, each designed to meet the varying and unique needs of our subscribers and enhance their daily lives, including: iTranslate, through which subscribers can connect and communicate across over 100 languages; Robokiller, which thwarts telemarketing spam phones calls; and NOAA Radar, which provides up-to-date weather information and storm tracking worldwide. SlimWare is a provider of community-powered software and services that clean, repair, update and optimize personal computers.
Partnerships
ThroughWe distribute our Partnerships business, we work closely with partners in the software, media and other industries to design and develop customized browser‑based searchbranded mobile applications to be bundledour subscribers primarily through the Apple App and distributed with these partners’ products and services.Google Play stores.
Revenue
Substantially all of the Applications segment'sDesktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. Paid listings are advertisements displayed on search results pages that generally contain a link to advertiser websites. Paid listings are generally displayed based on keywords selected by advertisers. The substantial majority of the paid listings displayed by our Applications businesses areDesktop business is supplied to us by Google Inc. ("Google") in the manner provided by and pursuant to aour services agreement with Google, which expires on March 31, 2020. The Company may choose to terminate this agreement effective March 31, 2019.Google.
Pursuant to this agreement, those of our ApplicationsDesktop businesses that provide search services transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through one of our ApplicationsDesktop businesses and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing directly and shares a portion of the fee charged to the advertiser with us. We recognize paid listing revenue from Google when it delivers the user's click. In cases where the user’s click is generated due to the efforts of a third party distributor, we recognize the amount due from Google as revenue and record a revenue share or other payment obligation to the third party distributor as traffic acquisition costs. See “Item"Item 1A-Risk Factors-We depend upon arrangements with Google and any adverse change in this relationship could adversely affect our business, financial condition and results of operations.”Google."
To a significantly lesser extent, the Applications segment'sDesktop revenue also includes fees related to subscription downloadable desktop applications, as well as display advertisements.
Mosaic Group revenue consists primarily of fees related to subscription downloadable mobile applications fees related to paid mobile downloadable applicationsdistributed through the Apple App and Google Play stores, as well as display advertisements.
CompetitionMarketing
We market our Desktop applications to users primarily through digital display advertisements and paid search engine marketing efforts, as well as through a number of affiliate advertisers who engage in these efforts on our behalf. We market our mobile applications to users primarily through digital storefronts (primarily Apple App and Google Play stores) and digital display advertisements on social media, messaging and media platforms, as well as in-app and cross-app advertising.
Competition
The Applications industry is competitive and has no single, dominant desktop or mobile application brand globally. In the case of our Desktop business, we compete with a wide varietynumber of parties in connection with our efforts toother companies that develop and market similar desktop browser application products and distribute applicationsthem through direct to consumer and related technology directly and through third parties. Competitors of our Applications businesses include Google, Yahoo!,
Bing and other third party browser extension, conveniencethird-party agreements. We also compete with search and applications providers and otherengines to provide users with new tab, homepage and/or default search technology and convenience service providers.
Moreover, some of the current and potential competitors of our Applications businesses have longer operating histories, greater brand recognition, larger customer bases and/or significantly greater financial, technical and marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the development and promotion of their products and services, which could result in greater market acceptance of their products and services relative to those offered by us.
services. We believe that the ability of our Applications businessesDesktop business to compete successfully will depend primarily upon the following factors:
our ability to maintain industry-leading monetization solutions for our desktop browser applications in response to technological changes and platform demands;
the size and stability of our global base of installed desktop application products and our ability to grow this base;
the continued ability to:
createcreation of desktop browser extensions and other applications that resonate with consumers, (which requires that we continuewhich depends upon our continued ability to bundle attractive features, content and services some(some of which may be owned by third parties, with quality search services)parties);
maintain industry-leading monetization solutions for our applications;
ability to differentiate our desktop browser extensions and other applications from those of our competitors (primarily through providing customized browser tab pages and access to multiple search and other services through our browser extensions);
secure cost-effective distribution arrangements with third parties;competitors; and
our ability to market and distribute our desktop browser extensionsapplications through direct to consumer (primarily the Chrome Web Store) and other applications directly to consumersthird-party channels in a cost-effective manner.
In the case of Mosaic Group, we compete with many mobile application companies that provide similar free and paid mobile application products. Our competition also comes from services provided by non-mobile, analog and disparate sources, along with certain digital companies whose competitive products are ancillary or immaterial to their primary sources of revenue. We believe that the ability of Mosaic Group to compete successfully will depend primarily upon the following factors:
the continued growth of consumer adoption of free and paid mobile applications generally and related engagement levels;
our ability to operate our mobile applications as a scalable platform;
our ability to retain existing subscribers and acquire new subscribers in a cost-effective manner;
our ability to continue to optimize our marketing and monetization strategies;
the continued growth of smartphone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Mosaic Group brands; and
our ability to introduce new and enhanced mobile applications in response to competitor offerings, consumer preferences, platform demands, social trends and evolving technological landscape.
PublishingEmerging & Other
Overview
Our Publishing segment consists of:
our Premium Brands business, which includes About.com, Dictionary.com, Investopedia and The Daily Beast; and
our AskEmerging & Other business, whichsegment primarily includes Ask.com and CityGrid.includes:
Our Publishing businesses publish digital content and/or provideAsk Media Group, a collection of websites providing general search services to users. Those of our Publishing businessesand information;
BlueCrew, an on-demand staffing platform that publish digital content (our Premium Brands) generate such content through various sources, including, for example, through a network of “experts”connects temporary workers with traditional blue-collar jobs in the case of About.comareas like warehouse, delivery and internal editorial staff in the case of The Daily Beast, and/or acquire such content (or the rights to publish such content) from third parties. Those of our Publishing businesses that provide search services generally generatemoving, data entry and display of a set of algorithmic search results, or hyperlinks to websites deemed relevant to search queries entered by users. In addition to these algorithmic search results, paid listings are also generally displayed in response to search queries. The paid listings displayed by our Publishing businesses are supplied to us by Google in the manner provided by and pursuant to our services agreement with Google, which is described above.
Premium Brands
Our Premium Brands business primarily consists of the following destination websites:
About.com, which provides detailed information and content written by independent, freelance subject matter experts;
Dictionary.com, which primarily provides online and mobile dictionary, thesaurus and reference services;
Investopedia, a resource for investment and personal finance education and information; andcustomer service;
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that curatespublishes original reporting and publishes existing and original online contentopinion from its own roster of contributorsfull-time journalists and contributors;
College Humor Media, a provider of digital content, including its recently launched subscription only property, Dropout.tv; and
IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States.States and internationally.
During 2016, About.com evolved from a general content websiteFor information regarding businesses that were included in this segment prior to a collection of vertical brands by transitioning content from the various network channels on its general content website to stand-alone vertical domains, each with its own unique brandingtheir respective sales, see "Item 8-Consolidated Financial Statements and user experience. To date, content from four network channels (specifically, Health, Money, Tech, and Home) has been transitioned to four verticals (Verywell.com, TheBalance.com, Lifewire.com and TheSpruce.com, respectively). We currently intend to launch additional verticals in 2017.
Ask & Other
Our Ask & Other business consists primarily of:
Ask.com, which provides general search services, as well as question and answer services that provide direct answers to natural-language questions; and
CityGrid, an advertising network that integrates local content and advertising for distribution to affiliated and third party publishers across web and mobile platforms.Supplementary Data-Note 1-Organization."
Revenue
The Publishing segment's revenueRevenue of Ask Media Group consists principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries and display advertisements (sold directly and through programmatic ad sales) and fees related to paid mobile downloadable applications.. The substantial majority of the paid listings that our Publishing businesses displaydisplayed are supplied to us by Google in the manner, provided by and pursuant to ourthe services agreement with Google, described above under "-Applications-Revenue."
The Daily Beast revenue consists of advertising revenue, which is described above.
Competition
We compete with a wide variety of parties in connection with our efforts to attractgenerated primarily through display advertisements (sold directly and retain users and advertisers to our Publishing businesses.
In terms of publishing digital content, our competitors include destination websites that primarily acquire traffic through paid and algorithmic search results in relevant vertical categories and social channels. In terms of providing search services, generally our competitors include Google, Yahoo!, Bing and other destination search websites and search‑centric portals (some of which provide a broad range of content and services and/or link to various desktop applications)programmatic ad sales).
Moreover, someBlueCrew revenue consists of the currentservice revenue, which is generated through staffing temporary workers.
Revenue of College Humor Media and potential competitors of our Publishing businesses have longer operating histories, greater brand recognition, larger customer bases and/or significantly greater financial, technicalIAC Films is generated primarily through media production and marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the developmentdistribution and promotion of their products and services, which could result in greater market acceptance of their products and services relative to those offered by us.
We believe that the ability of our Publishing businesses to compete successfully will depend primarily upon:
the quality of the content and features on our various Publishing platforms (websites and mobile applications), and the attractiveness of the services provided by these platforms generally, relative to those of our competitors;
our ability to successfully generate and acquire content (or the rights thereto) in a cost-effective manner;
the relevance and authority of the content, search results and answers featured on our various Publishing platforms; and
our ability to successfully market the content and search services offered by our Publishing businesses in a cost-effective manner.
Other
Our Other segment consisted of ShoeBuy, an Internet retailer of footwear and related apparel and accessories, and PriceRunner, a shopping comparison website. PriceRunner was sold in March 2016 and ShoeBuy was sold in December 2016.advertising.
Employees
As of December 31, 2016,2018, IAC had approximately 7,800 employees worldwide, the substantial majority of which provided services to our brands and its subsidiaries employed approximately 5,800 full-time employees and approximately 3,300 part-timebusiness located in the United States. We believe that we generally have good relationships with our employees. Substantially all of our part-time employees are employed by Match Group's non-dating businesses and perform academic tutoring, test preparation and college counseling services. IAC believes that it generally has good employee relationships.
Additional Information
Company Website and Public Filings.Filings
The Company maintains a website at www.iac.com. Neither the information on the Company’s website, nor the information on the website of any IAC business, is incorporated by reference into this annual report, or into any other filings with, or into any other information furnished or submitted to, the SEC.
The Company makes available, free of charge through its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (including related amendments) as soon as reasonably practicable after they have been electronically filed with (or furnished to) the SEC.
Code of Ethics.Ethics
The Company’s code of ethics applies to all employees (including IAC’s principal executive officers, principal financial officer and principal accounting officer) and directors and is posted on the Investor Relations section of the Company's website at www.iac.com/Investors under the "Code of Ethics" tab. This code of ethics complies with Item 406 of SEC Regulation S-K and the rules of The Nasdaq Stock Market LLC. Any changes to the code of ethics that affect the provisions required by Item 406 of Regulation S-K and(and any waivers of such provisions of the code of ethics for IAC’s executive officers, senior financial officers or directors,directors) will also be disclosed on IAC’s website.
Item 1A. Risk Factors
Cautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K contains “forward‑"forward‑looking statements”statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “plans”"anticipates," "estimates," "expects," "plans" and “believes,”"believes," among others, generally identify forward‑lookingforward-looking statements. These forward‑lookingforward-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‑lookingforward-looking statements are based on IAC management's expectations and assumptions about future events as of the date of this annual report, 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, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect IAC’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward‑looking statements discussed in this annual report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward‑lookingforward-looking statements, which only reflect the views of IAC management as of the date of this annual report. IAC does not undertake to update these forward‑looking statements.
Risk Factors
Our success depends, in substantial part, on our continued ability to market, distribute and monetize our products and services through search engines, social media platforms and digital app stores.
The marketing, distribution and monetization of our products and services depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with search engines, social media platforms and digital app stores, in particular, those operated by Google, Facebook and Apple. These platforms could decide not to market and distribute some or all of our products and services, change their terms and conditions of use at any time (and without notice), favor their own products and services over ours and/or significantly increase their fees. While we expect to maintain cost-effective and otherwise satisfactory relationships with these platforms, no assurances can be provided that we will be able to do so and our inability to do so in the case of one or more of these platforms could have a material adverse effect on our business, financial condition and results of operations.
In particular, as consumers increasingly access our products and services through mobile applications, we (primarily in the case of our dating and Mosaic Group businesses) increasingly depend upon the Apple App Store and the Google Play Store to distribute our mobile applications. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, including those relating to the amount of (and requirement to pay) certain fees associated with purchases facilitated by Apple and Google through our mobile applications, to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute mobile applications through their stores, the features we provide and the manner in which we market in-app products. We cannot assure you that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our in-app products. To the extent either or both of them do so, our business, financial condition and results of operations could be adversely affected.
In addition, the use of certain of our products and services also depends, in part, on social media platforms. For example, many users of Match Group’s Tinder, Hinge and certain other dating products historically registered for (and logged into) these dating products exclusively through their Facebook profiles. While Match Group launched an alternate authentication method that allows users to register for (and log into) Tinder, Hinge and other affected products using their mobile phone number, no assurances can be provided that users will no longer register for (and log into) Tinder, Hinge and other affected products through their Facebook profiles. Facebook has broad discretion to change its terms and conditions applicable to the data collected by its platform (and the use of such data) and to interpret its terms and conditions in ways that could limit, eliminate or otherwise interfere with our ability to use Facebook as an authentication method or to allow Facebook to use such data to gain a competitive advantage. If any such event were to occur, our, business, financial condition and results of operations could be adversely affected.
Our success depends, in part, upon the continued migration of certain markets and industries online and the continued growth and acceptance of online products and services as effective alternatives to traditional offline products and services.
Through our various businesses, we provide a variety of online products and services that continue to compete with their traditional offline counterparts. We believe that the continued growth and acceptance of online products and services generally will depend, to a large extent, on the continued growth in commercial use of the Internet (particularly abroad) and the continued migration of traditional offline markets and industries online.
For example, the success of the businesses within our Match Group segment depends, in substantial part, on the continued migration of the dating market online, our ability to continue to provide dating products that users find more efficient, effective, comfortable and convenient relative to traditional means of meeting people and the continued erosion of stigma surrounding online dating (particularly in emerging markets and other parts of the world). If for any reason the dating market does not continue to migrate online as quickly as (or at lower levels than) we expect and/or a meaningful number of users do not embrace our dating products (and/or return to offline dating products and services), our business, financial condition and results of operations could be adversely affected.
Similarly, the success of the businesses within our ANGI Homeservices segment depends, in substantial part, on the continued migration of the home services market online. If for any reason the home services market does not migrate online as quickly as (or at lower levels than) we expect and consumers and service professionals continue, in large part, to rely on traditional offline efforts to connect with one another, our business, financial condition and results of operations could be adversely affected.
Lastly, as it relates to our advertising-supported businesses, our success also depends, in part, on our ability to compete for a share of available advertising expenditures as more traditional offline and emerging media companies continue to enter the online advertising market, as well as on the continued growth and acceptance of online advertising generally. If for any reason online advertising is not perceived as effective (relative to traditional advertising) and related mobile and other advertising models are not accepted, web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and/or the industry fails to effectively manage click fraud, the market for online advertising will be negatively impacted. Any lack of growth in the market for online advertising (particularly for paid listings) could adversely affect our business, financial condition and results of operations.
Marketing efforts designed to drive visitors to our various brands and businesses may not be successful or cost-effective.
Traffic building and conversion initiatives involve considerable expenditures for online and offline advertising and marketing. We have made, and expect to continue to make, significant expenditures for search engine marketing (primarily in the form of the purchase of keywords, which we purchase primarily through Google and, to a lesser extent, Microsoft and Yahoo!), online display advertising and traditional offline advertising (including television and radio campaigns) in connection with these initiatives, which may not be successful or cost-effective. Historically, we have had to increase advertising and marketing expenditures over time in order to attract and convert consumers, retain users and sustain our growth.
Our ability to market our brands on any given property or channel is subject to the policies of the relevant third-party seller, publisher of advertising (including search engines and social media platforms with extraordinarily high levels of traffic and numbers of users) or marketing affiliate. As a result, we cannot assure you that these parties will not limit or prohibit us from purchasing certain types of advertising, advertising certain of our products and services and/or using one or more current or prospective marketing channels in the future. If a significant marketing channel took such an action generally, for a significant period of time and/or on a recurring basis, our business, financial condition and results of operations could be adversely affected. In addition, if we fail to comply with the policies of third-party sellers, publishers of advertising and/or marketing affiliates, our advertisements could be removed without notice and/or our accounts could be suspended or terminated, any of which could adversely affect our business, financial condition and results of operations.
In addition, our failure to respond successfully to rapid and frequent changes in the pricing and operating dynamics of search engines, as well as changing policies and guidelines applicable to keyword advertising (which may be unilaterally updated by search engines without advance notice), could adversely affect both our paid search engine marketing efforts and free search engine traffic. Such changes could adversely affect paid listings (both their placement and pricing), as well as the ranking of our brands and businesses within search results, any or all of which could increase our costs (particularly if free traffic is replaced with paid traffic) and adversely affect the effectiveness of our marketing efforts overall. Certain of our businesses engage in efforts similar to search engine optimization through Facebook and other social media platforms (for example, developing content designed to appear higher in a given Facebook News Feed and generate "likes") that involve challenges and risks similar to those we face in connection with our search engine marketing efforts.
Evolving consumer behavior (specifically, increased consumption of media through digital means) can also affect the availability of cost-effective marketing opportunities. To continue to reach consumers, engage with users and continue to grow in this environment, we will need to identify and devote more of our overall marketing expenditures to newer digital advertising channels (such as online video and other digital platforms), as well as target consumers and users via these channels. Since newer advertising channels are undeveloped and unproven relative to traditional channels (such as television), it could be difficult to assess returns on our related marketing investments, which could adversely affect our business, financial condition and results of operations.
Lastly, we also enter into various arrangements with third parties to drive visitors to our various brands and businesses, which arrangements are generally more cost-effective than traditional marketing efforts. If we are unable to renew existing (and enter into new) arrangements of this nature, sales and marketing costs as a percentage of revenue would increase over the long-term, which could adversely affect our business, financial condition and results of operations. In addition, the quality and convertibility of leads generated through third-party arrangements are dependent on many factors, most of which are outside our control. If the quality and/or convertibility of leads do not meet the expectations of the users of our various products and services, our business, financial condition and results of operations could be adversely affected.
Our brands and businesses operate in especially competitive industries.
The industries in which our brands and businesses operate are competitive, with a consistent and growing stream of new products and entrants. Some of our competitors may enjoy better competitive positions in certain geographical areas, user demographics and/or other key areas that we currently serve or may serve in the future. Generally (and particularly in the case of our dating business), we compete with social media platforms with access to large existing pools of potential users and their personal information, which means these platforms can drive visitors to their products and services, as well as use better tailor products and service to individual users, at little to no cost relative to our efforts. For example, our dating business competes with Facebook, which introduced a dating feature on its
platform that it is testing in certain markets and intends to roll out globally in the near future. We also compete generally with search engine providers and online marketplaces that can market their products and services online in a more prominent and cost-effective manner than we can. Any of these advantages could enable our competitors to offer products and services that are more appealing to consumers than our products and services, respond more quickly and/or cost effectively than we do to evolving market opportunities and trends and/or display their own integrated or related products and services in a more prominent manner than our products and services in search results, which could adversely affect our business, financial condition and results of operations.
In addition, costs to switch among products and services are low or non-existent and consumers generally have a propensity to try new products and services (and use multiple products and services simultaneously). As a result, we expect the continued emergence of new products and services, entrants and business models in the various industries in which our brands and businesses operate. Our inability to compete effectively against new products, services and competitors could result in decreases in the size and levels of engagement of our various user, subscriber and membership bases, which could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to build, maintain and/or enhance our various brands.
Through our various businesses, we own and operate a number of widely known consumer brands with strong brand appeal and recognition within their respective markets and industries, as well as a number of emerging brands that we are in the process of building. We believe that our success depends, in large part, on our continued ability to maintain and enhance our established brands, as well as build awareness of (and loyalty to) our emerging brands. Events that could adversely impact our brands and brand-building efforts include (among others): product and service quality concerns, consumer complaints, actions brought by consumers, ineffective advertising, inappropriate and/or unlawful actions taken by users, actions taken by governmental or regulatory authorities, data protection and security breaches and related bad publicity. The occurrence or any of these events could, in turn, adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to develop and monetize versions of our products and services for mobile and other digital devices.
As consumers increasingly access our products and services through mobile and other digital devices (including through digital voice assistants), we will need to devote significant time and resources to ensure that our products and services are accessible across these platforms (and multiple platforms generally). If we do not keep pace with evolving online, market and industry trends (including changes in the preferences and needs of our users and consumers generally), offer new and/or enhanced products and services in response to such trends that resonate with consumers, monetize products and services for mobile and other digital devices as effectively as our traditional products and services and/or maintain related systems, technology and infrastructure in an efficient and cost-effective manner, our business, financial condition and results of operations could be adversely affected.
In addition, the success of our mobile and other digital products and services depends on their interoperability with various third-party operating systems, technology, infrastructure and standards, over which we have no control. Any changes to any of these things that compromise the quality or functionality of our mobile and digital products and services could adversely affect their usage levels and/or our ability to attract consumers and advertisers, which could adversely affect our business, financial condition and results of operations.
Our brands and businesses are sensitive to general economic events or trends, particularly those that adversely impact advertising spending levels and consumer confidence and spending behavior.
A significant portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access), is attributable to online advertising, primarily revenue from our Dotdash and Applications segments and our Ask Media Group business. Accordingly, events and trends that result in decreased advertising expenditures and/or levels of consumer confidence and discretionary spending could adversely affect our business, financial condition and results of operations.
Similarly, the businesses within our ANGI Homeservices segment are particularly sensitive to events and trends that could result in consumers delaying or foregoing home services projects and/or service professionals being less likely to pay for Marketplace subscriptions and consumer matches. could result in decreases in Marketplace service requests and directory searches. Any such decreases could result in turnover at the Marketplace and/or any of our directories, adversely impact the number and quality of service professionals at the Marketplace and our directories
and/or adversely impact the reach of (and breath of services offered through) the Marketplace and our directories, any or all of which could adversely affect our business, financial condition and results of operations
Lastly, we have historically been, and will continue to be, sensitive to events and trends that could result in decreased marketing and advertising expenditures by service professionals. Adverse economic conditions and trends could result in service professionals decreasing and/or delaying membership subscriptions, fees paid for consumer matches and/or time-based advertising spend, any or all of which would result in decreased revenue and could adversely affect our business, financial condition and results of operations.
Our ability to communicate with our users and consumers via e-mail (or other sufficient means) is critical to our success.
As consumers increasingly communicate via mobile and other digital devices and messaging and social media apps, usage of e-mail (particularly among younger consumers) has declined and we expect this trend to continue. In addition, deliverability and other restrictions could limit or prevent our ability to send e-mails to users and consumers. A continued and significant erosion in our ability to communicate with consumers and users via e-mail could adversely impact the user experience, engagement levels and conversion rates, which could adversely affect our business, financial condition and results of operations. We cannot assure you that any means of communication (for example, push notifications) will be as effective as e-mail has been historically.
We may need to offset increasing digital app store fees by decreasing traditional marketing expenditures, increasing user volume or monetization per user or by engaging in other efforts to increase revenue or decrease costs generally.
We increasingly rely upon the Apple App Store and the Google Play Store to distribute the mobile applications of our various businesses. While some of our mobile applications are generally free to download from these stores, many of our mobile applications (primarily our dating and Mosaic Group applications) are subscription-based and/or offer in-app à la carte features for a fee. We determine the prices at which these subscriptions and à la carte features are sold; however, related purchases must be processed through the in-app payment systems provided by Apple and, to a lesser extent, Google. As a result, we pay Apple and Google, as applicable, a meaningful share (generally 30%) of the revenue we receive from these transactions. While we are constantly innovating on and creating our own payment systems and methods, given the increasing distribution of our mobile applications through digital app stores and strict in-app payment system requirements, we may need to offset these increased digital app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user or engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected. Additionally, to the extent Google changes its terms and conditions or practices to require us to process purchases of subscriptions and à la carte features through its in-app payment system, our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, of the ability of ANGI Homeservices to establish and maintain relationships with quality service professionals.
We will need to continue to attract, retain and grow the number of skilled and reliable service professionals who can provide home services across ANGI Homeservices platforms. If we do not offer innovative products and services that resonate with consumers and service professionals generally, as well provide service professionals with an attractive return on their marketing and advertising investments (quality matches and leads that convert into jobs), the number of service professionals affiliated with ANGI Homeservices platforms would decrease. Any such decrease would result in smaller and less diverse networks and directories of service professionals, and in turn, decreases in service requests and directory searches, which could adversely impact our business, financial condition and results of operations.
We depend upon arrangements with Google.
A meaningful portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access) is attributable to a services agreement with Google. Pursuant to this agreement, we display and syndicate paid listings provided by Google in response to search queries generated by users of our Applications and certain Emerging & Other properties. In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as certain other search‑related services. Our current agreement with Google expires on March 31, 2020. In February 2019, we amended this agreement, effective as
of April 1, 2020, to extend the expiration date of our agreement to March 31, 2023; provided, however, that beginning September 2020 and each September thereafter, we or Google may, after discussion with the other party, terminate the services agreement, effective on September 30 of the year following the year such notice is given. We believe that the amended agreement, taken as a whole, is comparable to our current agreement with Google.
The amount of revenue we receive from Google depends on a number of factors outside of our control, including the amount Google charges for advertisements, the efficiency of Google’s system in attracting advertisers and serving up paid listings in response to search queries and parameters established by Google regarding the number and placement of paid listings displayed in response to search queries. In addition, Google makes judgments about the relative attractiveness (to advertisers) of clicks on paid listings from searches performed on our properties and these judgments factor into the amount of revenue we receive. Google also makes judgments about the relative attractiveness (to users) of paid listings from searches performed on our properties and these judgments factor into the number of advertisements we can purchase. Changes to the amount Google charges advertisers, the efficiency of Google’s paid listings network, Google's judgment about the relative attractiveness to advertisers of clicks on paid listings from our properties or to the parameters applicable to the display of paid listings generally could result in a decrease in the amount of revenue we receive from Google and could adversely affect our business, financial condition and results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Google.
Our services agreement with Google also requires that we comply with certain guidelines for the use of Google brands and services, including the Chrome browser and Chrome Web Store. These guidelines govern which of our products and applications may access Google services or be distributed through its Chrome Web Store, and the manner in which Google’s paid listings are displayed within search results across various third-party platforms and products (including our properties). Our services agreement also requires that we establish guidelines to govern certain activities of third parties to whom we syndicate paid listings, including the manner in which these parties drive search traffic to their websites and display paid listings. Google may generally unilaterally update its policies and guidelines without advance notice, which could in turn require modifications to, or prohibit and/or render obsolete certain of, our products, services and/or business practices, which could be costly to address or otherwise adversely affect our business, financial condition and results of operations. Noncompliance with Google’s guidelines by us or the third parties to whom we are permitted to syndicate paid listings or through which we secure distribution arrangements for certain of our Applications properties could, if not cured, result in the suspension of some or all Google services to our properties (or the websites of our third-party partners) and/or the termination of the services agreement by Google.
The termination of the services agreement by Google, the curtailment of our rights under the agreement (whether pursuant to the terms thereof or otherwise) and/or the failure of Google to perform its obligations under the agreement would have an adverse effect on our business, financial condition and results of operations. If any of these events were to occur, we may not be able to find another suitable alternate provider of paid listings (or if an alternate provider were found, the economic and other terms of the agreement and the quality of paid listings may be inferior relative to our arrangements with, and the paid listings supplied by, Google) or otherwise replace the lost revenues.
Foreign currency exchange rate fluctuations could adversely affect us.
We operate in various foreign markets, primarily in various jurisdictions within the European Union, and as a result, are exposed to foreign exchange risk for both the Euro and British Pound ("GBP"). During the fiscal years ended December 31, 2018 and 2017, approximately 34% and 30% of our total revenues, respectively, were international revenues. We translate international revenues into U.S. Dollar-denominated results. As a result, as foreign currency exchange rates fluctuate, the translation of the statement of operations of our international businesses into U.S. Dollars affects the period-over-period comparability of operating results. We are also exposed to foreign currency exchange gains and losses to the extent we or our subsidiaries conduct transactions in, and/or have assets and/or liabilities that are denominated in, a currency other than the relevant entity's functional currency. For details regarding exchange rates and foreign currency exchange gains and losses for the fiscal years ended December 31, 2018 and 2017, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Exchange Risk."
Brexit may continue to cause disruptions to capital and currency markets worldwide, and the full impact of the Brexit decision remains uncertain. Ongoing negotiations between the United Kingdom and the European Union will determine the terms of their relationship following Brexit. During this period of negotiation and following the completion of Brexit, our operating results could be adversely affected by exchange rate and other market and economic volatility.
We have not hedged foreign currency exposures historically given that related gains or losses were not material to the Company. As we continue to grow and expand our international operations, our exposure to foreign exchange rate fluctuations will increase and if significant, could adversely affect our business, financial condition and results of operations.
We may not be able to protect our systems, technology and infrastructure from cyberattacks and cyberattacks experienced by third parties may adversely affect us.
We are regularly under attack by perpetrators of malicious technology-related events, such as the use of botnets, malware or other destructive or disruptive software, distributed denial of service attacks, phishing, attempts to misappropriate user information and account login credentials and other similar malicious activities. The incidence of events of this nature (or any combination thereof) is on the rise worldwide. While we continuously develop and maintain systems designed to detect and prevent events of this nature from impacting our systems, technology, infrastructure, products, services and users, have invested (and continue to invest) heavily in these efforts and related personnel and training and deploy data minimization strategies (where appropriate), these efforts are costly and require ongoing monitoring and updating as technologies change and efforts to overcome preventative security measures become more sophisticated. Despite these efforts, some of our systems have experienced past security incidents, none of which had a material adverse effect on our business, financial condition and results of operations, and we could experience significant events of this nature in the future.
Any event of this nature that we experience could damage our systems, technology and infrastructure and/or those of our users, prevent us from providing our products and services, compromise the integrity of our products and services, damage our reputation, erode our brands and/or be costly to remedy, as well as subject us to investigations by regulatory authorities, fines and/or litigation that could result in liability to third parties. Even if we do not experience such events firsthand, the impact of any such events experienced by third parties could have a similar effect. We may not have adequate insurance coverage to compensate for losses resulting from any of these events. If we (or any third-party with whom we do business or otherwise rely upon) experience(s) an event of this nature, our business, financial condition and results of operations could be adversely affected.
If personal, confidential or sensitive user information that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate and our reputation could be harmed.
We receive, process, store and transmit a significant amount of personal, confidential or sensitive user information and, in the case of certain of our products and services, enable users to share their personal information with each other. While we continuously develop and maintain systems designed to protect the security, integrity and confidentiality of this information, we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information. When such events occur, we may not be able to remedy them and it may be costly to mitigate and to develop and implement protections to prevent future events of this nature from occurring. When breaches of security (ours or that of any third-party we engage to store information) occurs, the reputation of our brands and business could be harmed, which could adversely affect our business, financial condition and results of operations.
Credit card data security breaches or fraud that we or third parties experience could adversely affect us.
Certain of our businesses accept payment (including recurring payments) via credit and debit cards and certain online payment service providers. The ability of these businesses to access payment information on a real time‑basis without having to proactively reach out to users to process payments is critical to our success.
When we or a third-party experience(s) a data security breach involving credit card information, affected cardholders will often cancel their cards. In the case of a breach experienced by a third-party, the more sizable the third-party’s customer base, the greater the number of accounts impacted and the more likely it is that our users would be impacted by such a breach. If our users were affected, we would need to contact affected users to obtain new payment information. It is likely that we would not be able to reach all affected users, and even if we could, new payment information for some individuals may not be obtained and pending transactions may not be processed, which could adversely affect our business, financial condition and results of operations.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of providers of online products and services to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant effort.
If we fail to prevent credit card data security breaches and fraudulent credit card transactions, we could face litigation, governmental enforcement action, fines, civil liability, diminished public perception of our security measures, higher credit card-related costs and substantial remediation costs, or credit card processors could cease doing business with us, any of which could adversely affect our business, financial condition and results of operations
The processing, storage, use and disclosure of personal data could give rise to liabilities and increased costs.
We receive, transmit and store a large volume of personal information and other user data (including personal credit card data, as well as private content (such as videos and correspondence)) in connection with the processing of search queries, the provision of online products and services, payment transactions and advertising on our various properties. The manner in which we share, store, use, disclose and protect this information is determined by the respective privacy and data security policies of our various businesses, as well as federal, state and foreign laws and regulations and evolving industry standards and practices, which are changing, and in some cases, inconsistent and conflicting and subject to differing interpretations. In addition, new laws, regulations, standards and practices of this nature are proposed and adopted from time to time.
For example, a comprehensive European Union privacy and data protection reform, the General Data Protection Regulation (the "GDPR"), became effective in May 2018. The GDPR, which applies to companies that are organized in the European Union or otherwise provide services to (or monitor) consumers who reside in the European Union, imposes significant penalties (monetary and otherwise) for non-compliance. The GDPR will continue to be interpreted by European Union data protection regulators, which may require that we make changes to our business practices, and could generate additional risks and liabilities. The European Union is also considering an update to its Privacy and Electronic Communications Directive to impose stricter rules regarding the use of cookies. In addition, the potential exit from the European Union by the United Kingdom could result in the application of new and conflicting data privacy and protection laws and standards to our operations in the United Kingdom and our handling of personal data of users located in the United Kingdom. In addition, there are a number of privacy and data protection laws and regulations recently passed or under consideration by the U.S. Congress, as well as in various U.S. states and foreign jurisdictions in which we do business, including the California Consumer Privacy Act of 2018, which becomes effective January 1, 2020.
While we believe that we comply with applicable privacy and data protection policies, laws and regulations and industry standards and practices in all material respects, we could still be subject to claims of non-compliance that we may not be able to successfully defend and/or significant fines and penalties. Moreover, any non-compliance or perceived non-compliance by us (or any third-party we engage to store or process information) or any compromise of security that results in unauthorized access to (or use or transmission of) personal information could result in a variety of claims against us, including governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. When such events occur, our reputation could be harmed and the competitive positions of our various brands and businesses could be diminished, which could adversely affect our business, financial condition and results of operations.
Lastly, ongoing compliance with existing (and compliance with future) privacy and data protection laws worldwide could be costly. The devotion of significant costs to compliance (versus to product development) could result in delays in the development of new products and services, us ceasing to provide problematic products and services in existing jurisdictions and us being prevented from introducing products and services in new and existing jurisdictions, which could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on the integrity, quality, efficiency and scalability of our systems, technology and infrastructure, and those of third parties.
We rely on our systems, technology and infrastructure to perform well on a consistent basis. From time to time in the past we have experienced (and in the future we may experience) occasional interruptions that make some or all of this framework and related information unavailable or that prevent us from providing products and services; any such interruption could arise for any number of reasons. We also rely on third-party data center service providers and cloud-based, hosted web service providers, as well as third-party computer systems and a variety of communications systems
and service providers in connection with the provision of our products and services generally, as well as to facilitate and process certain payment and other transactions with users. We have no control over any of these third parties or their operations.
The framework described could be damaged or interrupted at any time due to fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism, acts of God and other similar events or disruptions. Any event of this nature could prevent us from providing our products and services at all (or result in the provision of our products on a delayed or interrupted basis) and/or result in the loss of critical data. While we and the third parties upon whom we rely have certain backup systems in place for certain aspects of our respective frameworks, none of our frameworks are fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. When such damages, interruptions or outages occur, our reputation could be harmed and the competitive positions of our various brands and businesses could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
We also continually work to expand and enhance the efficiency and scalability of our framework to improve the consumer experience, accommodate substantial increases in the number of visitors to our various platforms, ensure acceptable load times for our various products and services and keep up with changes in technology user preferences. If we do not do so in a timely and cost-effective manner, the user experience and demand across our brands and businesses could be adversely affected, which could adversely affect our business, financial condition and results of operations.
Mr. Diller and certain members of his family collectively have sole voting and/or investment power over a significant percentage of the voting power of our stock. As a result, Mr. Diller and these family members are able to exercise significant influence over the composition of our Board of Directors, matters subject to stockholder approval and our operations.
As of January 27, 2017,the date of this report, Mr. Diller, his spouse, Diane von Furstenberg, and his stepson, Alexander von Furstenberg, collectively beneficially owned 5,789,499 shares of IAC Class B common stock and 136,711 shares of IAC common stock all of which were held in trusts for the benefit of Mr. Diller and certain members of his family, and 1,711 shares of IAC common stock held by a private foundation. As of that date, the shares of IAC Class B common stock beneficially owned by Mr. Diller and certain members of his family collectively represented 100% of IAC’s outstanding Class B common stock and, together with the shares of IAC common stock also beneficially owned by these individuals, represented approximately 44.7%42.8% of the total outstanding voting power of IAC. Mr. Diller also holds 550,000 vested options and 750,000 unvested options to purchase IAC common stock.
In addition, pursuant to an amended and restated governance agreement between IAC and Mr. Diller, for so long as Mr. Diller serves as IAC’s Chairman and Senior Executive and he beneficially owns (within(based on the meaningnumber of Rule 13d-3 of the Securities Exchange Act of 1934) at least 5,000,000 shares of IAC Class B common stock and/or common stock in which he has a pecuniary interest (includingoutstanding on February 1, 2019). For details regarding the IAC securities beneficially owned by him directlyMr. Diller, Ms. Von Furstenberg and indirectly through trusts for the benefit of himMr. Von Furstenberg, see "Item 1-Business-Equity Ownership and certain members of his family), he generally has the right to consent to limited matters in the event that IAC’s ratio of total debt to EBITDA (as defined in the governance agreement) equals or exceeds four to one over a continuous twelve-month period.Vote."
As a result of IAC securities beneficially owned by Mr. Diller and certain members of his family, Mr. Diller and these family membersindividuals, they are, collectively, currently in a position to influence, subject to our organizational documents and Delaware law, the composition of IAC’s Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions. In addition, this concentration of investment and voting power could discourage others from initiating a potential merger, takeover or other change of control transaction that may otherwise be beneficial to IAC, which could adversely affect the market price of IAC securities.
We depend on our key personnel.
Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly skilled individuals, withparticularly in the continued contributionscase of our senior management being especially critical to our success.management. Competition for well-qualified employees across IAC and its various businesses is intense and our continued abilitywe must attract new (and retain existing) employees to compete effectively depends, in part, upon our ability to attract new employees.effectively. While we have established programs to attract new (and retain existing) employees, and provide incentives to retain existing employees, particularly our senior management, we cannot assure you that we willmay not be able to attract new employees or(or retain the services of our senior management or anyexisting) key and other key employees in the future. Effective succession planning is also important to our future success. IfIn addition, if we fail todo not ensure the effective transfer of senior management knowledge to successors and smooth transitions involving(particularly in the case of senior managementmanagement) across our various businesses, our ability to execute short and long term strategic, financial and operating goals, as well as our business, financial condition and results of operations generally, could be adversely affected.
We depend upon arrangements with Google and any adverse change in this relationship could adversely affect our business, financial condition and results of operations.
A substantial portion of our consolidated revenue is attributable to a services agreement with Google. Pursuant to this agreement, we display and syndicate paid listings provided by Google in response to search queries generated by users of our Publishing and Applications properties. In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as certain other search‑related services. Our current agreement with Google expires on March 31, 2020. The Company may choose to terminate this agreement effective March 31, 2019.
The amount of revenue we receive from Google depends upon a number of factors outside of our control, including the amount Google charges for advertisements, the efficiency of Google’s system in attracting advertisers and serving up paid listings in response to search queries and parameters established by Google regarding the number and placement of paid listings displayed in response to search queries. In addition, Google makes judgments about the relative attractiveness (to advertisers) of clicks on paid listings from searches performed on our Publishing and Applications properties and these judgments factor into the amount of revenue we receive. Google also makes judgments about the relative attractiveness (to users) of paid listings from searches and these judgments factor into the amount of advertisements we can purchase. Changes to the amount Google charges to advertisers, Google’s paid listings network efficiency, its judgment about the relative attractiveness to advertisers of clicks on paid listings from our Publishing and Applications properties or the parameters applicable to the display of paid listings could result in a decrease in the amount of revenue we receive and could have an adverse effect on our business, financial condition and results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Google.
Our services agreement with Google also requires that we comply with certain guidelines promulgated by Google for the use of its brands and services, including with respect to which products and applications may access Google's services, and the manner in which Google’s paid listings are displayed within search results across various platforms and products. Our services agreement also requires that we establish guidelines to govern certain activities of third parties to whom we syndicate paid listings, including the manner in which these parties drive search traffic to their websites and display paid listings. 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. Noncompliance with Google’s guidelines by us or the third parties to whom we are permitted to syndicate paid listings or through which we secure distribution arrangements for our applications could, if not cured, result in Google’s suspension of some or all of its services to our websites or the websites of our third party partners or the termination of the services agreement by Google.
The termination of the services agreement by Google, the curtailment of IAC’s rights under the agreement (whether pursuant to the terms thereof or otherwise) or the failure of Google to perform its obligations under the agreement would have an adverse effect on our business, financial condition and results of operations. If any of these events were to occur, we may not be able to find another suitable alternate paid listings provider (or if an alternate provider were found, the economic and other terms of the agreement and the quality of paid listings may be inferior relative to our arrangements with, and the paid listings supplied by, Google) or otherwise replace the lost revenues.
General economic events or trends, particularly those that reduce advertising spending and/or adversely impact consumer confidence, could harm our business, financial condition and results of operations.
A substantial portion of our consolidated revenue (primarily revenue from our Applications and Publishing segments) is attributable to online advertising. Accordingly, we are particularly sensitive to events and trends that could result in decreased advertising expenditures. Advertising expenditures have historically been cyclical in nature, reflecting overall economic conditions and budgeting and buying patterns, as well as levels of consumer confidence and discretionary spending.
Similarly, some of our businesses (primarily HomeAdvisor) are particularly sensitive to events and trends that adversely impact consumer confidence and spending behavior. For example, in the event of a general economic downturn or sudden disruption in business conditions, consumer confidence, spending levels and credit availability could be adversely affected. The occurrence of any of these events or trends could result in consumers delaying or foregoing home services projects, which could result in a decrease in fees paid by home service professionals for consumer matches, which could adversely affect our business, financial condition and results of operations. We could also experience turnover in our network of home services professionals given that a significant number of our home services professionals are sole proprietorships and small businesses, and as such, are particularly sensitive to events and trends that adversely impact consumer confidence and spending behavior. While these home services professionals are required to agree that they will operate in accordance with our terms and conditions, we do not enter into long‑term agreements with them. Any turnover, if significant or recurring over a prolonged period, could result in a decrease in traffic to our properties and increased costs, all of which could adversely affect our business, financial condition and results of operations.
In the recent past, adverse economic conditions have caused, and if such conditions were to recur in the future they could cause, decreases and/or delays in advertising expenditures and discretionary spending by consumers, which would reduce our revenues and adversely affect our business, financial condition and results of operations.
Our success depends, in part, upon the continued growth and acceptance of online advertising, particularly paid listings, as an effective alternative to traditional, offline advertising and the continued commercial use of the Internet.
We continue to compete with traditional advertising media, including television, radio and print, in addition to a multitude of websites with high levels of traffic and online advertising networks, for a share of available advertising expenditures and expect to face continued competition as more emerging media and traditional offline media companies continue to enter the online advertising market. We believe that the continued growth and acceptance of online advertising generally will depend, to a large extent, on its perceived effectiveness and the acceptance of related advertising models (particularly in the case of mobile advertising), the continued growth in commercial use of the Internet (particularly abroad), the extent to which web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and the extent to which the industry is able to effectively manage click fraud. Any lack of growth in the market for online advertising, particularly for paid listings, or any decrease in the effectiveness and value of online advertising (whether due to changes in laws, changes in industry practices, the emergence of technologies that can block the display of advertisements across platforms or other developments) would have an adverse effect on our business, financial condition and results of operations.
The distribution and use of our products and services depends, in part, on third parties.
We distribute our products and services through a variety of third party publishers and distribution channels. For example, as our users and customers increasingly access our products and services through mobile applications, we (primarily in the case of Match Group’s dating business and Apalon, one of the businesses within our Applications segment) increasingly depend upon the Apple App Store and the Google Play Store to distribute our mobile applications. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, and to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute our mobile applications through their stores. We cannot assure you that Apple or Google will not limit or eliminate or otherwise interfere with the distribution of our mobile applications. If either or both of them did so, our business, financial condition and results of operations could be adversely affected.
The use of certain of our products and services also depends, in part, on third parties. For example, users of Match Group's Tinder dating product currently register for (and log in to) Tinder exclusively through their Facebook profiles. While Match Group is currently in the process of developing an alternate authentication method that would allow users to register for (and log into) Tinder using their mobile phone number, no assurances can be provided that users will use this method versus registering for (and logging into) Tinder through their Facebook profiles. Facebook has broad discretion to change its terms and conditions applicable to the use of its platform and to interpret its terms and conditions in ways that could limit, eliminate or
otherwise interfere with our ability to use Facebook as an authentication method and if Facebook did so and no alternate authentication method is available (or the alternate method Match Group ultimately develops is not adopted by users), Match Group’s (and in turn, our) business, financial condition and results of operations could be adversely affected.
Lastly, certain of the businesses within our Applications and Publishing segments have entered into (and expect to continue to enter into) agreements to distribute search boxes, browser extensions and other applications to users through third parties. Most of these agreements are either non‑exclusive and short‑term in nature or, in the case of long‑term or exclusive agreements, are terminable by either party in certain specified circumstances. In addition, a few of these agreements collectively represent a significant percentage of the revenue generated by our Partnerships business. The inability of these businesses to enter into new (or renew existing) agreements to distribute search boxes, browser extensions and other applications through third parties for any reason would result in decreases in traffic to our various properties, queries and advertising revenue, which could have an adverse effect on our business, financial condition and results of operations.
Our success depends, in part, on our continued ability to introduce new and enhanced content, products and services in response to evolving trends and technologies and that otherwise resonate with our users and customers.
We may not be able to convert traffic into repeat users and customers unless we continue to introduce new and enhanced content, products and services in response to evolving trends and technologies and provide quality products and services that otherwise resonate with our users and customers.
The development of new content, products and services, as well as the identification of new business opportunities in this dynamic environment, require significant time and resources. We may not be able to adapt quickly enough to these changes, appropriately time the introduction of new content, products and services or identify new business opportunities in a timely manner. Also, these changes could require us to modify related infrastructures and our failure to do so could render our existing websites, applications, services and proprietary technologies obsolete. Our failure to respond to any of these changes appropriately and efficiently could adversely affect our business, financial condition and results of operations.
In addition, third parties could continue to develop technologies and policies that may interfere with the ability of users to access or utilize our products and services generally, otherwise make users less likely to use our products and services or interfere with the advertising efforts of our various businesses. For example, third parties have developed technologies that can block the display of online advertisements across platforms (particularly and increasingly in the case with mobile platforms) and that provide users with the ability to opt out of advertising products. In addition, third parties continue to introduce technologies (including new and enhanced web browsers and operating systems) that may limit or prevent certain types of applications from being installed and/or have features and policies that significantly lessen the likelihood that users will install our applications or that previously installed applications will remain in active use. Our failure to successfully modify our websites and products in a cost-effective manner in response to the introduction and adoption of new technologies, or our failure to find alternative sources of revenue to support websites and products that currently generate revenue through advertising, could adversely affect our business, financial condition and results of operations.
Lastly, while the continued introduction of new content, products and services is critical to our success, by definition, new content, products and services have limited operating histories, which could make it difficult for us to evaluate our current business and future prospects. For example, through Match Group, we seek to tailor each of our dating products to meet the preferences of specific communities of users. Building a given dating product is generally an iterative process that occurs over a meaningful period of time and involves considerable resources and expenditures. Although certain of our newer dating products have experienced significant growth over relatively short periods of time, the historical growth rates of these dating products are not necessarily an indicator of future growth rates for our newer dating products generally. We have encountered, and may continue to encounter, risks and difficulties as we build new content, brands and products. The failure to successfully address these risks and difficultiesindebtedness could adversely affect our business, financial condition and results of operations.
Marketing efforts designed to drive traffic to our various websites may not be successful or cost-effective.
Traffic building and conversion initiatives involve considerable expenditures for online and offline advertising and marketing. We have made, and expect to continue to make, significant expenditures for search engine marketing (primarily in the form of the purchase of keywords, which we purchase primarily through Google and, to a lesser extent, Microsoft and Yahoo!), online display advertising and traditional offline advertising (including television) in connection with these initiatives, which may not be successful or cost-effective. Historically, we have had to increase advertising and marketing expenditures over time in order to attract and retain users and customers and sustain our growth.
In the case of paid advertising generally, our ability to market our brands on any given property or channel is subject to the policies of the relevant third party seller, publisher of advertising (including through search engines and social networks and platforms) or marketing affiliate. As a result, any such third party could limit our ability to purchase certain types of advertising or advertise some of our products and services, which could affect our ability to compete effectively and, in turn, adversely affect our business, financial condition and results of operations. We cannot assure you that we will not be limited or prohibited from using certain current or prospective marketing channels in the case of any of our businesses in the future. If this were to happen in the case of a significant marketing channel and/or for a significant period of time, our business, financial condition and results of operations could be adversely affected. In addition, if we fail to comply with the policies of third party sellers, publishers of advertising or marketing affiliates, our advertisements could be removed without notice and/or our accounts could be suspended or terminated, any of which could have an adverse effect on our business, financial condition and results of operations.
In the case of our search engine marketing and optimization efforts, our failure to respond successfully to rapid and frequent changes in the pricing and operating dynamics of search engines, as well as changing policies and guidelines applicable to keyword advertising (which may be unilaterally updated by Google, Microsoft and Yahoo! without advance notice), could adversely affect both the placement of paid listings that appear in response to keywords we purchase, the pricing of online advertising we purchase generally and how our websites rank within search results, any or all of which would increase our costs and adversely impact the effectiveness of our advertising efforts overall.
Certain of our businesses engage in efforts similar to search engine optimization involving Facebook and other social media platforms (for example, developing content designed to appear higher in a given Facebook News Feed and generate "likes") that involve challenges and risks similar to those faced in connection with our broader search engine marketing and optimization efforts. Also, search engines continue to expand their offerings into other, non-search related categories, and in certain instances display their own integrated or related product and service offerings in a more prominent manner than those of third parties within their search results. Continued expansion and competition from search engines could result in a substantial decrease in traffic to our various properties, as well as increased costs if we were to replace free traffic with paid traffic, which would adversely affect our business, financial condition and results of operations.
Separately, evolving consumer behavior can affect the availability of cost-effective marketing opportunities. For example, as traditional television viewership declines and consumers spend more time on mobile devices rather than desktop computers, the reach of many of traditional online and offline advertising channels is contracting. To continue to reach potential users and customers, we must continue to identify and devote more of our overall marketing expenditures to newer advertising channels, such as mobile and online video platforms, as well as targeted campaigns in which we communicate directly with potential, former and current users via new virtual means. Generally, the opportunities in (and sophistication of) newer advertising channels are undeveloped and unproven relative to opportunities in traditional online and offline channels and if we are unable to continue to appropriately manage and fine‑tune our marketing efforts in response to these and other trends in the advertising industry, our business, financial condition and results of operations could be adversely affected.
Lastly, we also enter into various arrangements with third parties in an effort to drive traffic to our various websites and mobile applications, which arrangements are generally more cost-effective than traditional marketing efforts. If we are unable to renew existing (and enter into new) arrangements of this nature, sales and marketing costs as a percentage of revenue would increase over the long-term.
Any failure to attract and acquire new (and retain existing) traffic, users and customers in a cost-effective manner could adversely affect our business, financial condition and results of operations.
Communicating with our users via e-mail is critical to our success, and any erosion in our ability to communicate in this fashion that is not sufficiently replaced by other means could adversely affect our business, financial condition and results of operations.
Primarily in the case of Match Group’s dating business, one of our primary means of communicating with users and customers and keeping them engaged with our products and services is via e-mail. As consumer habits evolve in the era of smart phones and messaging/social networking apps, usage of e-mail, particularly among younger users and customers, has declined. In addition, deliverability and other restrictions imposed by third party e-mail providers and/or applicable law could limit or prevent our ability to send e-mails to our users and customers. A continued and significant erosion in our ability to communicate successfully with our users and customers via e-mail could have an adverse impact on user and customer experience, levels of user engagement and, in the case of Match Group’s dating businesses, the rate at which non‑paying users become paid members. While we continually work to find new means of communicating and connecting with our users and customers (for example, through push notifications), we cannot assure you that such alternative means of communication will
be as effective as e-mail has been historically. Any failure to develop or take advantage of new means of communication could have an adverse effect on our business, financial condition and results of operations.
Our success depends, in part, on our ability to build, maintain and/or enhance our various brands.
Through our various businesses, we own and operate a number of widely known consumer brands with strong brand appeal within their respective industries, as well as a number of emerging brands that we are in the process of building. We believe that our success depends, in part, upon our continued ability to maintain and enhance our established brands, as well as build awareness of (and loyalty to) our emerging brands. Our brands and brand-building efforts could be negatively impacted by a number of factors, including product and service quality concerns, consumer complaints, actions brought by consumers, governmental or regulatory authorities and related media coverage and data protection and security breaches. Moreover, the failure to market our products and services successfully (or in a cost-effective manner), the inability to develop and introduce products and services that resonate with consumers and/or the inability to adapt quickly enough (and/or in a cost effective manner) to evolving changes in the Internet and related technologies, applications and devices, could adversely impact our various brands and brand-building efforts, and in turn, our business, financial condition and results of operations.
Foreign currency exchange rate fluctuations could adversely affect our results of operations.
We operate in various international markets, primarily in various jurisdictions within the European Union, and as result are exposed to foreign exchange risk for both the Euro and British Pound ("GBP"). During the fiscal years ended December 31, 2016 and 2015, approximately 26% of our total revenues were international revenues. We translate international revenues into U.S. dollar-denominated operating results and during periods of a strengthening U.S. dollar, our international revenues will be reduced when translated into U.S. dollars. In addition, as foreign currency exchange rates fluctuate, the translation of our international revenues into U.S. dollar-denominated operating results affects the period-over-period comparability of such results.
Our primary exposure to foreign currency exchange risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. dollar, primarily the Euro. Since the average Euro versus the U.S. dollar exchange rate in 2016 was essentially flat compared to 2015, the translation of our international results into U.S. dollars did not significantly reduce our revenue nor did it have a significant effect on the period-over-period comparability of our U.S dollar-denominated operating results for the fiscal year ended December 31, 2016 versus December 31, 2015. To the extent that the U.S. dollar continues to strengthen relative to the Euro, the translation of our international revenues into U.S. dollars will reduce our U.S. dollar-denominated operating results and will affect their period-over-period comparability.
Fluctuating foreign exchange rates can also result in foreign currency exchange gains and losses. While foreign currency exchange gains and losses historically have not been material to the Company, the significant decline in the GBP due to the Brexit vote on June 23, 2016 generated significant foreign currency exchange gains during the fiscal year ended December 31, 2016. See "Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Risk."
Historically, we have not hedged any foreign currency exposures. The continued growth and expansion of our international operations into new countries increases our exposure to foreign exchange rate fluctuations. Significant foreign exchange rate fluctuations, in the case of one currency or collectively with other currencies, could adversely affect our future results of operations.
As the distribution of our dating products through app stores increases, in order to maintain our profit margins, we may need to offset increasing app store fees by decreasing traditional marketing expenditures, increasing user volume or monetization per user or by engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected.
As users of our dating products continue to shift to mobile solutions, we increasingly rely upon the Apple App Store and the Google Play Store to distribute our mobile applications. For example, while our mobile dating applications are generally free to download from these stores, we offer our users the opportunity to purchase paid memberships and certain à la carte features through these applications. We determine the prices at which these memberships and features are sold and, in exchange for facilitating the purchase of these memberships and features through these applications to users who download our applications from these stores, we pay Apple and Google, as applicable, a share (generally 30%) of the revenue we receive from these transactions. As the distribution of our dating products through app stores increases, we may need to offset these increased app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user, or by engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, on our ability to develop and monetize mobile versions of our products and services.
Our success depends, in part, on our ability to develop and monetize mobile versions of our products and services. While many of our users continue to access our products and services through personal computers, users of (and usage volumes on) mobile devices, including smartphones and tablets, continue to increase relative to those of personal computers. While we have developed mobile versions of certain of our products and services (and have developed certain products and services exclusively for mobile devices) and intend to continue to do so in the future, we may not be able to monetize these applications as effectively as we monetize our non-mobile products and services.
In addition, the success of our mobile applications is dependent on their interoperability with various mobile operating systems, technologies, networks and standards that we do not control and any changes in any of these things that compromise the quality or functionality of our products and services could adversely impact usage of our products and services on mobile devices and, in turn, our ability to attract advertisers. Our failure or inability to successfully respond to the general shift of users and customers to mobile devices could adversely affect our business, financial condition and results of operations.
Each of our dating products monetizes users at different rates. If a meaningful migration of our user base from our higher monetizing dating products to our lower monetizing dating products were to occur, it could adversely affect our business, financial condition and results of operations.
Through Match Group, we own, operate and manage a large and diverse portfolio of dating products. Each dating product has its own mix of free and paid features designed to optimize the user experience for, and revenue generation from, that product’s community of users. In general, the mix of features for the various dating products within our more established brands leads to higher monetization rates per user than the mix of features for the various dating products within our newer brands. If a significant portion of our user base were to migrate to our less profitable brands, our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, on the integrity and quality of our systems and infrastructures and those of third parties. System interruptions and the lack of integration and redundancy in our and third party information systems may affect our business.
To succeed, our systems and infrastructures must perform well on a consistent basis. From time to time, we may experience occasional system interruptions that make some or all of our systems or data unavailable or that prevent us from providing products and services; any such interruption could arise for any number of reasons. Furthermore, fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism, acts of God and other similar events or disruptions may damage or interrupt computer, data, broadband or other communications systems at any time. Any event of this nature could cause system interruptions, delays and loss of critical data, and could prevent us from providing services to users and customers. While we have backup systems in place for certain aspects of our operations, our systems are not fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. Any such interruptions or outages, regardless of the cause, could negatively impact the experiences of our users and customers with our products and services, tarnish our brands’ reputation and decrease demand for our products and services, any or all of which could adversely affect our business, financial condition and results of operations.
We also continually work to expand and enhance the efficiency and scalability of our technology and network systems to improve the experiences of our users and customers, accommodate substantial increases in the volume of traffic to our properties, ensure acceptable page load times and keep up with changes in technology and user and customer preferences. Any failure to do so in a timely and cost-effective manner could adversely affect the experiences of our users and customers with our products and services and thereby negatively impact demand for our products and services, and could increase our costs, any of which could adversely affect our business, financial condition and results of operations.
We also rely on third party computer systems, data center service providers, cloud-based web hosting services, broadband and other communications systems and service providers in connection with the provision of our products and services generally, as well as to facilitate and process certain transactions with our users and customers. We have no control over any of these third parties or their operations.
Any interruptions, outages or delays in our systems or those of our third party providers, changes in service levels provided by these systems or deterioration in the performance of these systems, could impair our ability to provide our products and services and/or process certain transactions with users and customers. If any of these events were to occur, it could damage
our reputation and result in the loss of current and potential users and customers, which could have an adverse effect on our business, financial condition and results of operations and otherwise be costly to remedy.
We may not be able to protect our systems, infrastructures and technologies from cyberattacks. In addition, we may be adversely impacted by cyberattacks experienced by third parties. Any disruption of our systems, infrastructures and technologies, or compromise of our user data or other information, due to cyberattacks could have an adverse effect on our business, financial condition and results of operations.
We are regularly under attack by perpetrators of malicious technology-related events, such as cyberattacks, computer hacking, computer viruses, worms, bot attacks or other destructive or disruptive software, distributed denial of service attacks, attempts to misappropriate customer information (including credit card information) or other malicious activities. Events of this nature could compromise the integrity of our systems, infrastructures and technologies, as well as the products and services offered by our various businesses, which could in turn adversely affect our users and customers. The incidence of events of this nature (or any combination thereof) is on the rise worldwide.
While we continuously develop and maintain systems to detect and prevent events of this nature from impacting our various businesses (and their respective systems, infrastructures, technologies, products, services, users and customers), and have invested (and continue to invest) heavily in these efforts and related training, these efforts are costly and require ongoing monitoring and updating as technologies change and efforts to overcome preventative security measures become more sophisticated. Despite our efforts, we cannot assure you that we will not experience significant events of this nature in the future and if such an event does occur, that it will not have an adverse effect on our business, financial condition and results of operations.
Any cyberattack or security breach we experience could damage our systems, infrastructures and technologies and/or those of our users and customers, prevent us from providing our products and services, compromise the integrity of our products and services, damage our reputation, erode our brands and/or be costly to remedy, as well as subject us to investigations by regulatory authorities and/or litigation that could result in liability to third parties. Even if we do not experience such events, the impact of any such events experienced by third parties with whom we do business (or upon whom we otherwise rely in connection with our day to day operations) could have a similar effect. Moreover, even cyberattacks and security breaches that do not impact us directly may result in a loss of consumer confidence generally, which could make consumers and users less likely to use our products and services.
In addition, we may not have adequate insurance coverage to compensate for losses resulting from any of these events.
If the security of personal and confidential user information, including credit card information, that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate the impact of such an event, our reputation could be harmed and our business, financial condition and results of operations could be adversely affected.
We receive, process, store and transmit a significant amount of personal user and other confidential information, including credit card information, and enable our users to share their personal information with each other. In some cases, we retain third party vendors to store this information. We continuously develop and maintain systems to protect the security, integrity and confidentiality of this information, but cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. If any such event were to occur, we may not be able to remedy the event, and we may have to expend significant capital and resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. If a breach of our security (or the security of our vendors and partners) occurs, the perception of the effectiveness of our security measures and our reputation may be harmed, we could lose current and potential users and the recognition of our various brands and their competitive positions could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
We are subject to a number of risks related to credit card payments, including data security breaches and fraud that we or third parties experience or additional regulation, any of which could adversely affect our business, financial condition and results of operations.
Our various businesses accept payment from our users and customers primarily through credit card transactions and certain online payment service providers. The ability of these businesses to access credit card information on a real time‑basis without having to proactively reach out to the consumer each time they process a payment for products and services (including auto‑renewal payments or payments for the purchase of a premium feature on or with any of our products or services) is critical to our success.
When we experience (or a third party experiences) a data security breach involving credit card information, affected cardholders will often cancel their credit cards. In the case of a breach experienced by a third party, the more sizable the third party’s customer base and the greater the number of credit card accounts impacted, the more likely it is that our users and customers would be impacted by such a breach. To the extent our users and customers are ever affected by such a breach experienced by us or a third party, affected individuals would need to be contacted to obtain new credit card information and process any pending transactions. It is likely that we would not be able to reach all affected individuals, and even if we could, new credit card information for some individuals may not be obtained and some pending transactions may not be processed, which could adversely affect our business, financial condition and results of operations.
Even if our users and customers are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant user and customer effort.
Additionally, if we fail to adequately prevent fraudulent credit card transactions, we may face litigation, fines, governmental enforcement action, civil liability, diminished public perception of our security measures, significantly higher credit card‑related costs and substantial remediation costs, any of which could adversely affect our business, financial condition and results of operations.
Finally, the passage or adoption of any legislation or regulation affecting the ability of service providers to periodically charge users and customers for recurring membership payments may adversely affect our business, financial condition and results of operations.
The processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights and compliance with laws designed to prevent unauthorized access of personal data could be costly.
We receive, transmit and store a large volume of personal information and other user data (including personal credit card data, as well as private content (such as videos and correspondence)) in connection with the processing of search queries, the provision of online products and services, transactions with users and customers and advertising on our websites. The sharing, storage, use, disclosure and protection of this information are determined by the respective privacy and data security policies of our various businesses. These policies are, in turn, subject to federal, state and foreign laws and regulations, as well as evolving industry standards and practices, regarding privacy generally and the sharing, storage, use disclosure and protection of personal information and user data. These laws, regulations, standards and practices are changing, inconsistent and conflicting and subject to differing interpretations, and new laws, regulations, standards and practices of this nature are adopted from time to time.
For example, in 2016, the European Commission: (i) and the United States reached an agreement on a new framework for transfers of personal data, the EU-U.S. Privacy Shield, which provides a safe harbor for U.S. companies that transfer data from the EU to the U.S. and (ii) adopted the General Data Protection Regulation (the "GDPR"), a comprehensive European Union privacy and data protection reform that will become effective in May 2018 and will supersede the European Union Data Protection Directive (the "EU Directive") currently in place. The GDPR imposes stricter standards regarding the sharing, storage, use, disclosure and protection of end user data and increased penalties for non-compliance relative to the EU Directive. In addition, the potential exit from the European Union by the United Kingdom could result in the application of new and conflicting data privacy and protection laws and standards to our operations in the United Kingdom and our handling our personal data of users located in the United Kingdom. In addition, there are a number of draft privacy laws and regulations under consideration in the U.S. (including in various states) and in various foreign jurisdictions in which we do business.
While we believe that we comply with applicable privacy policies, laws and regulations, as well as evolving industry standards and practices relating to privacy and data security in all material respects, there is no assurance that we will not be subject to claims that we have violated applicable laws and regulations, standard and practices, that we will be able to successfully defend against such claims or that we will not be subject to significant fines and penalties in the event of non-compliance. Moreover, any failure or perceived failure by us (or the third parties with whom we have contracted to handle such information) to comply with applicable privacy laws, privacy policies or privacy‑related contractual obligations or any compromise of security that results in unauthorized access to personal information could result in governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. In the case of such an event, our reputation may be harmed, we could lose current and potential users and the competitive positions of our various brands could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
Lastly, compliance with the numerous privacy and data protection laws in the various countries in which our businesses operate (particularly the GDPR) could be costly, particularly as these laws become more comprehensive in scope, more commonplace and continue to evolve. If these costs are significant, our business, financial condition and results of operations could be adversely affected.
Our indebtedness may affect our ability to operate our business, which could have a material adverse effect on our financial condition and results of operations. We and our subsidiaries may incur additional indebtedness, including secured indebtedness.
As of December 31, 2016,2018, we had total debt outstanding of approximately $1.6 billion, including $1.2$2.3 billion, of total debt outstanding atwhich $552 million, $1.5 billion and $261.3 million was owed by IAC, Match Group.Group and ANGI Homeservices, respectively. As of thisthat date, we, Match Group and ANGI Homeservices had borrowing availability of $300$250 million, $240 million and Match Group had borrowing availability of $500$250 million, respectively, under our respective revolving credit facilities. Neither Match Group, ANGI Homeservices nor any of itstheir respective subsidiaries guarantee any indebtedness of IAC or are currently subject to any of the covenants related to such indebtedness. Similarly, neither IAC nor any of its subsidiaries (other than Match Group and its subsidiaries)subsidiaries in the case of Match Group indebtedness and ANGI Homeservices and its subsidiaries in the case of ANGI Homeservices
indebtedness) guarantee any indebtedness of Match Group or ANGI Homeservices nor are subject to any of the covenants related to such indebtedness.
OurThe terms of the indebtedness of IAC, Match Group and Match Group's indebtedness could have important consequences, such as:ANGI Homeservices could:
limitinglimit our respective abilities to obtain additional financing to fund working capital needs, acquisitions, capital expenditures or other debt service requirements or for other purposes;
limitinglimit our respective abilities to use operating cash flow in other areas of our respective businesses because we must dedicate a substantial portion of these funds to service debt;indebtedness;
limitinglimit our respective abilities to compete with other companies who are not as highly leveraged, as we may be less capableleveraged;
restrict any one or more of responding to adverse economic and industry conditions;
restricting us from making strategic acquisitions, developing properties or exploiting business opportunities;
restrictingrestrict the way in which we conduct business becauseone or more of financial and operating covenants in the agreements governing our respective existing and future indebtedness;us conducts business;
exposingexpose one or more of us to potential events of default, (ifwhich if not cured or waived) under financial and operating covenants contained in our or our respective subsidiaries’ debt instruments thatwaived, could have a material adverse effect on our business, financial condition and operating results;
increasingincrease our vulnerabilityrespective vulnerabilities to a downturn in general economic conditions or in pricing of our various products and services; and
limitinglimit our respective abilities to react to changing market conditions in the various industries in which we do business.
In addition to our respective debt service obligations, our and Match Group’s operations require substantial investments on a continuing basis. Our ability or the ability of Match Group to make scheduled debt payments, to refinance obligations with respect to our indebtedness and to fund capital and non‑capital expenditures necessary to maintain the condition of our respective operating assets and properties, as well as to provide capacity for the growth of our respective businesses, depends on our respective financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors.
Subject to certain restrictions, in the agreements governing our and Match Group’s indebtedness, we and our subsidiaries may incur significant additional indebtedness, including additionalunsecured and secured indebtedness. Although the terms of agreements governing our and Match Group’s indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, andIf additional indebtedness incurred in compliance with these restrictions could be significant. If new debt is added to our or our subsidiaries’ current debt levels,significant, the risks described above could increase. Also, in the
Lastly, if an event a default has occurred or our leverage ratio exceeds thresholds specified in the agreements governing our indebtedness,thresholds, our ability to pay dividends, or to make distributions and repurchase or redeem our capital stock would be limitedlimited. Match Group and the agreements governing Match Group's indebtedness containANGI Homeservices are subject to similar restrictions. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Position, Liquidity and Capital Resources-FinancialResources and Financial Position."
We may not be able to generate sufficient cash to service all of our current and planned indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.indebtedness.
Our ability and theThe ability of IAC, Match Group and ANGI Homeservices to satisfy our respective debt obligations will depend upon, among other things:
our respective future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and
our future ability and the future ability of IAC, Match Group and ANGI Homeservices to borrow under our respective revolving credit agreements, the availability offacilities, which will depend on, among other things, compliance with the covenants in the then‑existing agreements governing suchour indebtedness.
There can be no assurance thatNeither we, ornor Match Group willnor ANGI Homeservices may be able to generate sufficient cash flow from our respective operations and/or that we or Match Group will be able to drawborrow under our respective revolving credit agreements or otherwise,facilities in an amountamounts sufficient to fundmeet our respective liquidity needs.scheduled debt obligations. See also "-We may not freely access the cash of Match Group, ANGI Homeservices and itstheir respective subsidiaries" below.
If cash flows and capital resources are insufficient to service indebtedness,so, we maycould be forced to reduce or delay capital expenditures, sell assets or seek additional capital in a manner that complies with the terms (including certain restrictions and limitations) of our current indebtedness. If these efforts do not generate sufficient funds to meet our scheduled debt obligations, we would need to seek additional financing and/or negotiate with our lenders to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt willdo so would depend on the condition of the capital markets and our financial condition at such time. Any such financing, restructuring or refinancing of our debt could be at higher interest rateson less favorable terms than those governing our current indebtedness and may require uswould need to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms (including certain restrictions and limitations) of our existing or future debt agreements may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations, sell equity, and/or negotiate with our lenders to restructure the applicable debt, in order to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. The agreements governing our and Match Group’s indebtedness may restrict, or market or business conditions may limit, our ability to avail ourselves of some or all of these options. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due.indebtedness.
We may not freely access the cash of Match Group, ANGI Homeservices and itstheir respective subsidiaries.
The Company's potentialPotential sources of cash for IAC include our available cash balances, net cash from the operating activities of certain of our subsidiaries, availability under IAC'sour revolving credit facility and proceeds from asset sales, including marketable securities. TheWhile the ability of our operating subsidiaries to pay dividends or to make other payments or advances to us depends on their individual operating results and anyapplicable statutory, regulatory or contractual restrictions to which they may be or may become subject. Agreements governinggenerally, in the case of Match Group'sGroup and ANGI Homeservices, the terms of their indebtedness limit the payment oftheir ability to pay dividends or the making ofmake distributions, loans or advances to stockholders, including IAC. In addition, because Match Group is aand ANGI Homeservices are separate and distinct legal entityentities with public shareholders, it hasthey have no obligation to provide us with funds for payment obligations, whether by dividends, distributions,funds.
Our variable rate indebtedness subjects us to interest rate risk.
As of December 31, 2018, Match Group had $260 million and $425 million outstanding under its revolving credit facility and term loan, respectively, and ANGI Homeservices has $263.1 million outstanding under its term loan. Borrowings under these loans are, and any borrowings under the revolving credit facilities of IAC or other payments.ANGI Homeservices will be, at variable interest rates, which exposes us to interest rate risk. For details regarding interest rates applicable to the variable rate indebtedness of Match Group and ANGI Homeservices described above as of December 31, 2018 and how certain increases and decreases in LIBOR rate would affect related interest expense, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk."
You may experience dilution with respect to your investment in IAC, and IAC may experience dilution with respect to its investmentinvestments in Match Group and ANGI Homeservices, as a result of the settlement ofcompensatory equity awards.
Our dilutive securities consist of vestedWe have issued various compensatory equity awards, including stock options, stock appreciation rights and unvested options to purchaserestricted stock unit awards denominated in shares of our common stock, restricted stock unit awards and vested and unvested stock options and stock settled stock appreciation rights denominatedas well as in the equity of certain of our various consolidated subsidiaries, including Tinder and other Match Group subsidiaries (“Subsidiary Awards”).and ANGI Homeservices. For more information regarding Subsidiary Awards,these awards and their impact on our diluted earnings per share calculation, see "Note 13-Stock-Based11-Stock-Based Compensation" and "Note 10-Earnings Per Share," respectively, to the consolidated financial statements included in "Item 8-Consolidated Financial Statements and Supplementary Data."
These dilutive securities are reflected in our share calculations underlying our dilutive earnings per share calculation contained in our financial statements for fiscal years ended December 31, 2016, 2015 and 2014. See "Note 12-Earnings Per Share” to the consolidated financial statements included in "Item 8-Consolidated Financial Statements and Supplementary Data." Intra-quarter movements in our stock price, as well as variances between the estimated fair value of our subsidiaries used to calculate such fully-diluted share calculations (which estimated fair value may change from time-to-time and quarter-to-quarter) and the fair value determined in connection with the liquidity events related to Subsidiary Awards, could lead to more or less dilution than reflected in these calculations.
The issuance of shares of IAC common stock in settlement of Subsidiary Awardsthese equity awards could dilute your ownership interest in IAC. Subsidiary Awards related to Match Group subsidiaries may be settled in shares of IAC common stock or Match Group common stock, at our option. In the event we elect to settle these Match Group Subsidiary Awardsdenominated in shares of Match Group or ANGI Homeservices common stock (rather thanthat are settled in shares of IAC common stock), ourthose subsidiaries could dilute IAC’s ownership stakeinterest in Match Group would be diluted. Thisand ANGI Homeservices, respectively. The dilution of our ownership stake(s) in Match Group and/or ANGI Homeservices could impact our ability, among other things, to maintain Match Group and/or ANGI Homeservices as part of our consolidated tax group for U.S. federal income tax purposes, to effect a tax-free distribution of our Match Group stakeand/or ANGI Homeservices stake(s) to our stockholders or to maintain control of Match Group.Group and/or ANGI Homeservices. As we generally have the right to maintain our levellevels of ownership in Match Group and ANGI Homeservices to the extent Match Group or ANGI Homeservices issues additional shares of itstheir respective capital stock in the future pursuant to an investor rights agreement,agreements, we do not intend to allow any of the foregoing to occur.
In additionWith respect to the dilution resulting from the issuance ofawards denominated in shares of IAC common stock (or Match Group common stock) in settlementour non-publicly traded subsidiaries, we estimate the dilutive impact of Subsidiary Equity Awards, the holders of the Subsidiary Equity Awards may choose to sell the shares of IAC common stock (or Match Group common stock) they receive in settlement of their Subsidiary Awards into the open market immediately. If sales are significant and concentrated, they could have a temporary impactthose awards based on the tradingour estimated fair value of our stock (or on Match Group common stock).
Variable rate indebtedness will subject usthose subsidiaries. Those estimates may change from time to interest rate risk, which could cause our debt service obligations to increase significantly.
Match Group currently has $350 million of indebtedness outstanding under its term loan. Borrowings under the term loan are, and any borrowings under Match Group's revolving credit facility will be, at variable rates of interest. Indebtedness that bears interest at variable rates exposes us to interest rate risk. Match Group's term loan bears interest at LIBOR plus 3.25%. As of December 31, 2016, the rate in effect was 4.20%. If LIBOR were to increase by 100 basis points, then the annual interest and expense payments on the outstanding balance as of December 31, 2016 on the term loan would have increased by $3.5 million. If LIBOR were to decrease by 100 basis points, then the effective interest rate would decrease by 20 basis points to the LIBOR floor of 0.75%time, and the annual interest expensefair value determined in connection with vesting and paymentsliquidity events could lead to more or less dilution than reflected in the current year would decrease by $0.7 million. See also "Item 7A-Quantitative and Qualitative Disclosures About Market Risk."our diluted earnings per share calculation.
We may not be ableexperience risks related to identify suitable acquisition candidates and even if we do so, we may experience operational and financial risks in connection with acquisitions. In addition, some of the businesses we acquire may incur significant losses from operations or experience impairment of carrying value.
We have made numerous acquisitions in the past and we continue to seek to identify potential acquisition candidates that will allow us to apply our expertise to expand their capabilities, as well as maximize our existing assets. As a result, our future growth may depend, in part, on acquisitions. We mayIf we do not be able to identify suitable acquisition candidates or complete acquisitions on satisfactory pricing or other terms, and we expect to continue to experience competition in connection with our acquisition-related efforts.growth could be adversely affected.
Even if we identifycomplete what we believe to be suitable acquisition candidates and negotiate satisfactory terms,acquisitions, we may experience related operational and financial risks in connection with acquisitions, andrisks. So, to the extent that we continue to grow through acquisitions, we will need to:
properly value prospective acquisitions, especially those with limited operating histories;
successfully integrate the operations, as well as the accounting, financial controls, management information, technology, human resourcesvarious functions and other administrative systems, of acquired businesses with our existing operations, functions and systems;
successfully identify and realize potential synergies among acquired and existing businesses;
retain or hire senior management and other key personnel at acquired businesses; and
successfully manage acquisition‑related strain on the management, operations and financial resources of IAC and its businesses and/or acquired businesses.resources.
We may not be successful in addressing these challenges or any other problems encountered in connection with historical and future acquisitions.acquisition-related challenges. In addition, the anticipatedacquisition-related cost savings, growth opportunities, synergies or other benefits of one or more acquisitions may not be realized andrealized. Also, future acquisitions could result in increased operating losses, potentially dilutive issuances of equity securities and the assumption of contingent liabilities. Also,Lastly, the value of goodwill and other intangible assets acquired could be impacted by one or more continuing unfavorable events and/or trends, which could result in significant impairment charges. The occurrence of any of these events could have an adverse effect onadversely affect our business, financial condition and results of operations.
We operate in various international markets, some in which we have limited experience. As a result, we face additional risks in connection with our international operations. Also, we may not be able to successfully expand into new, or further into our existing, international markets.
We currently operate in various jurisdictions abroad and may continue to expand our international presence. In order for our products and services in these jurisdictions to achieve widespread acceptance, commercial use and acceptance of the Internet (particularly via mobile devices) must continue to grow, which growth may occur at slower rates than those experienced in the United States. Moreover, we must continue to successfully tailor our products and services to the unique customs and cultures of foreign jurisdictions, which can be difficult and costly and the failure to do so could slow our international growth and adversely impact our business, financial condition and results of operations.
Operating abroad, particularly in jurisdictions where we have limited experience, exposes us to additional risks. These additional risks, include, among others:including:
operational and compliance challenges caused by distance, language barriers and cultural differences;
difficulties in staffing and managing international operations;
differing levels (or lack) of social and technological acceptance of our products and servicesservices;
slow or lack oflagging growth in the commercial use and acceptance of them generally;the Internet (particularly via mobile devices);
foreign currency fluctuations;
restrictions on the transfer of funds among countries and back to the United States and costs associated with repatriating funds to the United States;related repatriation costs;
differing and potentially adverse tax laws;
multiple, conflicting and changing laws, rules and regulations, and difficulties understanding and ensuring compliance with those laws by both our employees and our business partners, over whom we exert no control;challenges;
competitive environments that favor local businesses;
limitations on the level of intellectual property protection; and
trade sanctions, political unrest, terrorism, war and epidemics or the threat of any of these events.
The occurrence of any or all of these events could adversely affect our international operations, which couldand in turn, adversely affect our business, financial condition and results of operations. Our success in international markets will also depend, in large part, on our ability to identify potential acquisition candidates,successfully complete international acquisitions, joint ventureventures or other partners,transactions and to enter into arrangements withintegrate these parties on favorable terms and successfully integrate their businesses and operations with our own.
A variety of new laws, or new interpretations of existing laws, could subject us to claims or otherwise harm our business.
We are subject to a variety of laws and regulations in the U.S. and abroad that involve matters that are costlyimportant to comply with,or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, privacy and data protection, intermediary liability, consumer protection, protection of minors, taxation and securities compliance. These domestic and foreign laws, which in some cases can resultbe enforced by private parties in negative publicity and diversion of management time and effort,addition to government entities, are constantly evolving and can be subject us to claims or other remedies. Somesignificant change. As a result, the
application, interpretation and enforcement of these laws such as income, sales, use, value‑added and other tax laws and consumer protection laws,regulations are applicable to businesses generally and others are unique to the various types of businessesoften uncertain, particularly in which we are engaged. Many of these laws were adopted prior to the advent of the Internet industry, and related technologiesmay be interpreted and applied inconsistently from jurisdiction to jurisdiction, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Laws that do reference the Internet are being interpreted by the courts, but their applicability and scope remain uncertain. In addition, evolving Internet business practices may attract increased legal and regulatory attention. For example, the U.S. Federal Trade Commission has indicated that it will continue to monitor the use of online "native" advertising (a form of advertising in which sponsored content is presentedwell as in a manner that some may view as similar to traditional editorial content) to ensure that it is presentedcould conflict with our current policies and practices. We face the same issues in a manner that is not confusingthe case of amended, proposed or deceptive to consumers.new laws and regulations.
Any failure on our part to complyCompliance with applicable laws mayand regulations, as well as responding to any related inquiries, investigations or other government action, could be costly, delay or impede the development of new products and services, require modifications to existing products and services and/or require significant management time and attention. Non-compliance could subject us to additional liabilities,remedies that could harm our business, such as fines, demands or orders that require us to modify or cease then current products and services, as well as result in negative publicity. Consequences of compliance and non-compliance with applicable laws and regulations, if significant, could adversely affect our business, financial condition and results of operations.
We are particularly sensitive to laws and regulations that adversely impact the popularity or growth in use of the Internet and/or online products and services generally, restrict or otherwise unfavorably impact the ability or manner in which we provide our products and services, regulate the practices of third parties upon which we rely to provide our products and services and undermine open and neutrally administered Internet access. For example, in February 2019, the Secretary of State for Digital, Culture, Media and Sport of the United Kingdom, indicated in public comments that his office intends to inquire as to the measures utilized by online dating platforms (including Tinder) to prevent access by underage users. To the extent our dating business is required to implement new measures to prevent such access, our business, financial condition and results of operations could be adversely affected. In addition, in December 2017, the U.S. Federal Communications Commission (the "FCC") adopted an order reversing net neutrality protections in the United States, including the repeal of specific rules against blocking, throttling or "paid prioritization" of content or services by Internet service providers. To the extent Internet service providers take such actions, our business, financial condition and results of operations could be adversely affected.
We are also sensitive to the adoption of any law or regulation affecting the ability of our businesses to periodically charge for recurring membership or subscription payments, which could adversely affect our business, financial condition and results of operations. In addition, ifFor example, the lawsEuropean Union Payment Services directive, which became effective in 2018, could impact the ability of our businesses to process auto-renewal payments for, as well offer promotional or differentiated pricing to, users who reside in the European Union. Similar new legislation or regulations, or changes to existing legislation or regulations governing subscription payments, are being considered in many U.S. states.
We are also sensitive to the adoption of new tax laws. The European Commission and several European countries have issued proposals that would change various aspects of the current tax framework under which we are currently subject are amendedtaxed, including proposals to change or interpreted adversely to our interests, or ifimpose new adverse laws are adopted, our products and services might need to be modified to comply with such laws, which would increase our costs and could result in decreased demand for our products and services to the extent that we passtypes of non-income taxes (including taxes based on such costs to our customers. Specifically, in the casea percentage of tax laws, positions that we have taken or will take are subject to interpretation by the relevant taxing authorities. While we believe that the positions we have taken to date comply with applicable law, there can be no assurances that the relevant taxing authorities will not take a contrary position, and if so, that such positions will not adversely affect us. Any events of this nature could adversely affect our business, financial condition and results of operations.
Moreover, laws that regulate the practices of third parties may also adversely impact our business, financial condition and results of operations.revenue). For example, the Open Internet Order adopted byUnited Kingdom has proposed a Digital Services Tax applicable to revenues of social media platforms, online marketplaces and search engines linked to users residing in the U.S. Federal Communications Commission (the "FCC") in May 2016 codified "network neutrality," the principle that Internet service providers should treat all data traveling
through their networks the same, not discriminating or charging differentially by content, website, platform or application. The Open Internet Order's rules could be vacated by the courts in connection with a legal challengeUnited Kingdom, which would likely apply to the FCC's authority to adopt the order, repealed by the FCC or overruled by the U.S. Congress. If this were to occur, broadband Internet access providers could discriminate against Internet trafficcertain of our businesses in favorbusiness. If enacted, one or more of othersthese or charge our businesses to provide their services to users and consumers via their networks, whichsimilar proposed tax laws could increase our costs and would adversely affect our business, financial condition and results of operations.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We rely heavily upon our trademarks and related domain names and logos to market our brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets. We also rely, to a lesser extent, upon patented and patent‑pendingpatent-pending proprietary technologies with expiration dates ranging from 20172019 to 2038.2037.
We rely on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others to establish and protect our various intellectual property rights. For example, we have generally registered and continue to apply to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as we deem appropriate. Effective trademark protection may not be available or may not be sought in every country in which products and services are made available and contractual disputes may affect the use of marks governed by private contract. Similarly, not every variation of a domain name may be available or be registered, even if available.
We also generally seek to apply for patents or for other similar statutory protections as and if we deem appropriate, based on then current facts and circumstances, and will continue to do so in the future. No assurances can be given that any patent application we have filed (or will file)these efforts will result in adequate trademark and service mark protection, adequate domain name rights and protections, the issuance of a patent being issued, or that any existing or future patents will afford adequate patent protection against competitors and similar technologies. In addition, no assurances can be given that thirdThird parties will notcould also create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, challenges to our intellectual property rights maycould still not be protected in a meaningful manner, challenges to contractual rights could arise, or third parties could copy or otherwise obtain and use our intellectual property without authorization.authorization and/or laws regarding the enforceability of existing intellectual property rights could change in an adverse manner. The occurrence of any of these events could result in the erosion of our brands and limitations on our ability to control marketing on or through the Internetonline using our various domain names, as well as impede our ability to effectively compete against competitors with similar technologies, any of which could adversely affect our business, financial condition and results of operations.
From time to time, we have been subject to legal proceedings and claims in the ordinary course of business includingrelated to alleged claims of alleged infringement of trademarks, copyrights, patents and otherthe intellectual property rights held by third parties. In addition, litigationof others and may be necessaryneed to institute legal proceedings in the future to enforce, protect or refine the scope of our intellectual property rights, protectrights. For example, on March 17, 2018, our Match Group business filed a lawsuit against Bumble Trading Inc., which operates and markets the online dating application Bumble in the United States, for patent and trademark infringement, as well as trade secrets orsecret misappropriation. Bumble’s counterclaims request that our trademark registration for Tinder’s SWIPE trademark be canceled and that a number of our pending applications for trademark registration be denied. This case is currently pending in Federal Court in the Western District of Texas. Any legal proceedings related to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature,intellectual property, regardless of outcome or merit, could be costly and result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition and results of operations. Patent litigation tends to be particularly protracted and expensive.
Our estimated income taxes could be materially different from income taxes that we ultimately pay.
We are subject to income taxes in both the United States and numerous jurisdictions abroad. Significant judgment and estimation is required in determining our provision for income taxes and related matters. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determinations are uncertain or otherwise subject to interpretation. Our determination of our income tax liability is always subject to review by applicable tax authorities and we are currently subject to audits in a number of jurisdictions. Although we believe our income tax estimates and related determinations are reasonable and appropriate, relevant taxing authorities may disagree. The ultimate outcome of any such audits and reviews could be materially different from estimates and determinations reflected in our historical income tax provisions and accruals. Any adverse outcome of any such audit or review could have an adverse effect on our financial condition and results of operations.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
IAC believes that the facilities for its management and operations are generally adequate for its current and near-term future needs. IAC's facilities, most of which are leased by IAC's businesses in various cities and locations in the United States and various jurisdictions abroad, generally consist of executive and administrative offices, operations centers, data centers and sales offices.
All of IAC's leases are at prevailing market rates. IAC believes that the duration of each lease is adequate.
IAC believes that its principal properties, whether owned or leased, are currently adequate for the purposes for which they are used and are suitably maintained for these purposes. IAC does not anticipate any future problems renewing or obtaining suitable leases on commercially reasonable terms for any of its principal businesses. IAC's approximately 202,500 square foot corporate headquarters in New York, New York houses offices for IAC corporate and various IAC businesses within the following segments: Match Group, Video,Vimeo, Applications and Publishing.Emerging & Other.
Item 3. Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims.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.
Rules of the Securities and Exchange Commission require the description of material pending legal proceedings (other than ordinary, routine litigation incidental to the registrant's business) to which the registrant or any of its subsidiaries is a party or to which any of their property is subject and advise that proceedings ordinarily need not be described if they primarily involve claims for damages 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 Company management, none of the pending litigation matters that the Company and its subsidiaries 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.
Delaware Law
Consumer Class Action Litigation against IACChallenging Tinder’s Age‑Tiered Pricing
On November 21, 2016, following the Company’s announcement in its Definitive Proxy Statement of a proposal to adjust the Company’s capital structure by adopting an amendment and restatement of the Company’s certificate of incorporation (the “New Certificate”) to establish a new class of non-voting capital stock, which would be known as Class C common stock, and potentially declaring and paying a dividend of one share of the Class C common stock for each outstanding share of IAC common stock and Class B common stock (the “Dividend” and, together with the adoption of the New Certificate, the “Class C Issuance”),May 28, 2015, a putative state‑wide class action lawsuit was filed against Tinder, Inc. ("Tinder") in the Delaware Court of Chancery against the Company and its Board of Directors purportedly on behalf of the Company’s stockholders.state court in California. See Miller et al.Allan Candelore v. IAC/InterActiveCorp et al., C.A. No. 12929-VCL (Del. Ch. Ct.). The lawsuit generally alleged, among other things, that IAC’s directors breached their fiduciary duties in connection with the proposed Class C Issuance inasmuch as it was allegedly designed to unduly benefit the Company’s Chairman and Senior Executive, Barry Diller, in respect of his alleged voting control of the Company and would harm IAC’s public stockholders. Among other remedies, the lawsuit sought to enjoin the filing of the New Certificate with the Delaware Secretary of State, as well as unspecified money damages.
On November 22, 2016 and December 12, 2016, two additional putative class action lawsuits were filed in the Delaware Court of Chancery against the Company and its Board of Directors purportedly on behalf of the Company’s stockholders and asserting substantially similar allegations, claims and remedies as in the Miller lawsuit. See Halberstam v. Bronfman et al., C.A. No. 12935-VCL (Del. Ch. Ct.), and California Public Employees’ Retirement System v. IAC/InterActiveCorp et al.Tinder, Inc., No. 12975-VCL (Del. Ch. Ct.). All three lawsuits have been consolidated as In re IAC/InterActiveCorp Class C Reclassification Litigation, No. 12975-VCL, and the Court has designated the CalPERS complaint as the operative complaint in the case and established a case schedule. On January 23, 2017 and February 3, 2017, the defendants filed answers denying the material allegations of the complaint. The case is currently in discovery.
While the Class C Issuance was approved at the Company's 2016 Annual Meeting of Stockholders, the Company has agreed not to effect the Class C Issuance during the pendency of the lawsuit described immediately above, and the DelawareBC583162 (Superior Court of Chancery has been so informed.California, County of Los Angeles). The complaint principally alleged that Tinder violated California’s Unruh Civil Rights Act (the "Unruh Act") by offering and charging users age 30 and over a higher price than younger users for subscriptions to its premium Tinder Plus service. The complaint sought certification of a class of California Tinder Plus subscribers age 30 and over and
We believe that this lawsuit, and the material allegations and claims therein, are without merit and intend to continue to defend against them vigorously.
Securities Class Action Litigation against Match Group
As previously disclosed in our 2016 quarterly reports on Form 10-Q, 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 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 alleged 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 asserted 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 pleaded 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 Match Group’s alleged violations. The complaint sought among other relief class certification and damages in an unspecified amount. On September 21, 2015, Tinder filed a demurrer seeking dismissal of the complaint. On October 26, 2015, the court issued an opinion sustaining Tinder’s demurrer to the complaint without leave to amend, ruling that the age‑based pricing differential for Tinder Plus subscriptions did not violate California law in essence because offering a discount to users under age 30 was neither invidious nor unreasonable in light of that age group’s generally more limited financial means. On December 29, 2015, in accordance with its ruling, the court entered judgment dismissing the action. On February 1, 2016, the plaintiff filed a notice of appeal from the judgment, and the parties thereafter briefed the appeal. On January 29, 2018, the California Court of Appeal (Second Appellate District, Division Three) issued an opinion reversing the judgment of dismissal, ruling that the lower court had erred in sustaining Tinder’s demurrer because the complaint, as pleaded, stated a cognizable claim for violation of the Unruh Act. Because we believe that the appellate court’s reasoning was flawed as a matter of law and runs afoul of binding California precedent, on March 12, 2018, Tinder filed a petition with the California Supreme Court seeking interlocutory review of the Court of Appeal’s decision. On May 9, 2018, the California Supreme Court denied the petition. The case has been returned to the trial court for further proceedings and is currently in discovery. We and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
Bumble Claims against Match Group, LLC
On March 9, 2016,28, 2018, Bumble and its parent company filed a virtually identical class action complaint was filedlawsuit against Match Group, LLC ("Match") in the samestate court against the same defendants by a different named plaintiff.in Texas. See Stephany Kam-Wan ChanBumble Trading, Inc. and Bumble Holding, Ltd. v. Match Group, Inc. et al.LLC, No. DC‑18‑04140 (160th Judicial District Court, County of Dallas). The petition alleged that Match wrongfully obtained confidential information from the plaintiffs in connection with a potential Bumble sale process and filed an intellectual property lawsuit against Bumble in bad faith to undermine that process. The petition asserts claims for tortious interference with business relationships, fraud, misappropriation of trade secrets, unfair competition, promissory estoppel and disparagement. The petition seeks damages in excess of $400 million and an injunction against interference with the plaintiffs’ prospective business relationships or use of their confidential information. On September 26, 2018, Match filed its answer and counterclaims, a notice of removal of the case to the U.S. District Court for the Northern District of Texas, and a motion to transfer the case to the U.S. District Court for the Western District of Texas, where Match’s intellectual property lawsuit against Bumble is pending. See Bumble Trading, Inc. and Bumble Trading, Ltd. v. Match Group, LLC,No. 3:16-cv-66818-cv-2578 (U.S. District Court, Northern District of Texas). On April 25, 2016, Judge BoyleOctober 18, 2018, Bumble filed a motion to dismiss its own petition without prejudice. On November 1, 2018, Match opposed the motion as an attempt to circumvent the federal court’s jurisdiction and also amended its counterclaims to seek declaratory judgments of non-liability on the claims asserted in Bumble’s petition. On November 15, 2018, Bumble filed a motion to dismiss those counterclaims, which motion Match has opposed. On November 29, 2018, the Chan case issued an order granting the parties’ jointcourt granted Match’s motion to transfer thatthe case to Judge Lindsay, who is presiding over the earlier-filedWestern District of Texas. Stein case. On April 27, 2016, various current or former Match Group shareholdersSee Bumble Trading, Inc. 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. In accordance with this order, the consolidated case is now captioned Mary McCloskey et ano.Bumble Trading, Ltd. v. Match Group, Inc.LLC,No. 6:18-cv-350 (U.S. District Court, Western District of Texas). On January 15, 2019, Bumble filed a motion for leave to file another petition, this one against Match and IAC, in state court in Dallas County. Bumble’s proposed claims are for fraud, negligent misrepresentation, unfair competition, promissory estoppel and interference with prospective business relations and are based upon the allegation that Match and IAC misled Bumble in its sale process by falsely representing they would make a higher offer to purchase Bumble. On January 22, 2019, Match filed its opposition to Bumble’s motion for leave. We and Match Group believe that the plaintiffs’ allegations in both the pending and the proposed lawsuits are without merit and will continue to defend vigorously against them.
Tinder Optionholder Litigation against IAC and Match Group
On August 14, 2018, ten then-current and former employees of Match or Tinder, an operating business of Match Group, filed a lawsuit in New York state court against IAC and Match Group. See Sean Rad et al. v. IAC/InterActiveCorp and Match Group, Inc., No. 3:16-CV-549-L. On June 9, 2016,654038/2018 (Supreme Court, New York County). The complaint alleges that in 2017, the Magistrate Judge issued an order appointing two lead plaintiffs, two law firms as co-lead plaintiffs’ counsel,defendants: (i) wrongfully interfered with a contractually established process for the independent valuation of Tinder by certain investment banks, resulting in a substantial undervaluation of Tinder and a third law firm as plaintiffs’ liaison counsel.
On July 27, 2016, the parties submittedconsequent underpayment to the Court a joint status report proposing a schedule for the plaintiffs’ filingplaintiffs upon exercise of a consolidated amended complainttheir Tinder stock options, and the parties’ briefing(ii) then wrongfully merged Tinder into Match Group, thereby depriving one of the defendants’ contemplatedplaintiffs (Mr. Rad) of his contractual right to later valuations of Tinder on a stand‑alone basis. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, interference with contractual relations (as against Match Group only), and interference with prospective economic advantage, and seeks compensatory damages in the amount of at least $2 billion, as well as punitive damages. On August 31, 2018, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. On October 9, 2018, the defendants filed a motion to dismiss the consolidatedcomplaint on various grounds, including that the 2017 valuation of Tinder by the investment banks was an expert determination any challenge to which is both
time‑barred under applicable law and available only on narrow substantive grounds that the plaintiffs have not pleaded in their complaint. On AugustDecember 17, 2016, the Court issued an order approving the parties’ proposed schedule. On September 9, 2016, in accordance with the schedule, the2018, plaintiffs filed an amended consolidated complaint. The new pleading focuses solely on allegedly misleading statements or omissions concerning the Match Group’s Non-dating business. The defendants filed motions to dismiss the amended consolidated complaint on November 8, 2016. The plaintiffs filed oppositionstheir opposition to the motions on December 23, 2016, andmotion to dismiss. On January 15, 2019, the defendants filed replies totheir reply brief. A hearing on the oppositions on Februarymotion is scheduled for March 6, 2017. We2019, and discovery in the case is proceeding. IAC and Match Group believe that the allegations in these lawsuits, and the material allegations and claims therein,this lawsuit are without merit and intend towill continue to defend vigorously against them vigorously.it.
FTC Investigation of Certain Match.com Business Practices
In March 2017, the Federal Trade Commission (the "FTC") requested information and documents in connection with a civil investigation regarding certain business practices of Match.com. In November 2018, the FTC offered to resolve its potential claims relating to Match.com’s marketing, chargeback and online cancellation practices via a consent judgment mandating certain changes in Match.com’s business practices, as well as a payment in the amount of $60 million. We and Match Group believe that the FTC’s legal challenges to Match.com’s practices, policies and procedures are without merit and are prepared to defend vigorously against them.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant's Common Equity and Related Stockholder Matters
IAC common stock is quoted on the Nasdaq Global Select Market ("NASDAQ") under the ticker symbol "IAC." There is no established public trading market for IAC Class B common stock. The table below sets forth, for the calendar periods indicated, the high and low sales prices per share for IAC common stock as reported on NASDAQ. As February 27, 2017, the closing price of IAC common stock on NASDAQ was $74.44.
|
| | | | | | | |
| | High | | Low |
| Year Ended December 31, 2016 | | | |
| Fourth Quarter | $ | 68.75 |
| | $ | 60.39 |
|
| Third Quarter | 64.00 |
| | 55.41 |
|
| Second Quarter | 57.14 |
| | 45.37 |
|
| First Quarter | 60.56 |
| | 38.82 |
|
| Year Ended December 31, 2015 | | | |
| Fourth Quarter | $ | 73.15 |
| | $ | 58.30 |
|
| Third Quarter | 84.66 |
| | 63.29 |
|
| Second Quarter | 82.40 |
| | 66.63 |
|
| First Quarter | 70.10 |
| | 59.11 |
|
As of January 27, 2017,February 1, 2019, there were approximately 1,4001,200 holders of record of the Company's common stock and fivesix holders of record (all(Mr. Diller and five trusts, all for the benefit of Mr. Diller andand/or certain members of his family) of the Company's Class B common stock. As of the date of this report, there were four holders of record (Mr. Diller and three trusts for the benefit of certain members of Mr. Diller's family) of the Company's Class B common stock. Because the substantial majority of the outstanding shares of IAC common stock are held by brokers and other institutions on behalf of shareholders, IAC is not able to estimate the total number of beneficial shareholdersholders represented by these record holders.
In 2015, IAC's Board of Directors declared four quarterly cash dividends, all of which were $0.34 per share of common and Class B common stock outstanding. In February 2016, IAC announced that following the completion of the Match Group initial public offering and related debt transactions, IAC's Board of Directors had suspended the Company's quarterly cash dividend program. Accordingly, weDividends
We do not currently expect that comparableany cash or other dividends will continuebe paid to be paidholders of our common or Class B common stock in the near future. Any future cash dividend or other dividend declarations are subject to the determination of IAC's Board of Directors.
Unregistered Sales of Equity Securities
During the quarter ended December 31, 2016,2018, the Company did not issue or sell any shares of its common stock or other equity securities pursuant to unregistered transactions.
Issuer Purchases of Equity Securities
The following table sets forth purchases by the Company did not purchase any shares of its common stock during the quarter ended December 31, 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 |
| October 2016 | — |
| | | $ | — |
| | | — |
| | | 10,322,016 |
|
| November 2016 | 205,158 |
| | | $ | 67.26 |
| | | 205,158 |
| | | 10,116,858 |
|
| December 2016 | 817,342 |
| | | $ | 66.31 |
| | | 817,342 |
| | | 9,299,516 |
|
| Total | 1,022,500 |
| | | $ | 66.50 |
| | | 1,022,500 |
| | | 9,299,516 (2) |
|
| |
(1) | Reflects repurchases made pursuant to the share repurchase authorizations previously announced in April 2013 and May 2016. |
| |
(2) | Represents the total number of shares of common stock that remained available for repurchase as of December 31, 2016 pursuant to the May 2016 share repurchase authorization. As of January 30, 2017, the Company had approximately 8.6 million shares remaining in the May 2016 share repurchase authorization. IAC may purchase shares pursuant to this authorization 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. |
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31, 20162018 should be read in conjunction with the consolidated financial statements and accompanying notes included herein.
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | (In thousands, except per share data) | (In thousands, except per share data) |
Statement of Operations Data:(a) | | | | | | | | | | | | | | | | | | |
| Revenue | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
| | $ | 3,022,987 |
| | $ | 2,800,933 |
| $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
|
| (Loss) earnings from continuing operations | (16,340 | ) | | 113,357 |
| | 234,557 |
| | 281,799 |
| | 169,847 |
| |
| Earnings (loss) from continuing operations | | 757,747 |
| | 358,008 |
| | (16,151 | ) | | 113,374 |
| | 234,557 |
|
Earnings from discontinued operations (b) | | — |
| | — |
| | — |
| | — |
| | 174,673 |
|
| Net (earnings) loss attributable to noncontrolling interests | (25,129 | ) | | 6,098 |
| | 5,643 |
| | 2,059 |
| | (1,530 | ) | (130,786 | ) | | (53,084 | ) | | (25,129 | ) | | 6,098 |
| | 5,643 |
|
| Net (loss) earnings attributable to IAC shareholders | (41,280 | ) | | 119,472 |
| | 414,873 |
| | 285,784 |
| | 159,266 |
| |
| (Loss) earnings per share from continuing operations attributable to IAC shareholders: | | | | | |
| Net earnings (loss) attributable to IAC shareholders | | 626,961 |
| | 304,924 |
| | (41,280 | ) | | 119,472 |
| | 414,873 |
|
| | | | | | | | | | | |
| Earnings (loss) per share from continuing operations attributable to IAC shareholders: | | Earnings (loss) per share from continuing operations attributable to IAC shareholders: | | | | |
| Basic | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 2.88 |
| | $ | 3.40 |
| | $ | 1.95 |
| $ | 7.52 |
| | $ | 3.81 |
| | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 2.88 |
|
| Diluted | $ | (0.52 | ) | | $ | 1.33 |
| | $ | 2.71 |
| | $ | 3.27 |
| | $ | 1.81 |
| $ | 6.59 |
| | $ | 3.18 |
| | $ | (0.52 | ) | | $ | 1.33 |
| | $ | 2.71 |
|
| | | | | | | | | | | | | | | | | | | |
| Dividends declared per share | $ | — |
| | $ | 1.36 |
| | $ | 1.16 |
| | $ | 0.96 |
| | $ | 0.72 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | 1.36 |
| | $ | 1.16 |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, | December 31, |
| | 2016 | | 2015(b) | | 2014(b) | | 2013(b) | | 2012(b) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | (In thousands) | (In thousands) |
| Balance Sheet Data: | | | | | | | | | | | | | | | | | | |
| Total assets | $ | 4,645,873 |
| | $ | 5,188,691 |
| | $ | 4,241,421 |
| | $ | 4,183,810 |
| | $ | 3,774,574 |
| $ | 6,874,585 |
| | $ | 5,867,810 |
| | $ | 4,645,873 |
| | $ | 5,188,691 |
| | $ | 4,241,421 |
|
| Long-term debt, including current portion | 1,602,484 |
| | 1,766,954 |
| | 1,064,536 |
| | 1,062,446 |
| | 583,775 |
| |
| Long-term debt: | | | | | | | | | | |
| Current portion of long-term debt | | 13,750 |
| | 13,750 |
| | 20,000 |
| | 40,000 |
| | — |
|
| Long-term debt, net | | 2,245,548 |
| | 1,979,469 |
| | 1,582,484 |
| | 1,726,954 |
| | 1,064,536 |
|
| |
| (b) | Total assets and long-term debt have been adjustedThere were no discontinued operations for the four years ended December 31, 2018. For the year ended December 31, 2014, earnings from discontinued operations were due to the adoptionrelease of Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, and ASU No. 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 coststax reserves related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amountexpiration of the associated debt liability, consistent with debt discounts and premiums, while debt issuance costs related to line-of-credit arrangements may still continue to be classified as assets, see "Note 2—Summarystatutes of Significant Accounting Policies" tolimitations for federal income taxes for the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data."
years 2001 through 2009. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Key Terms:
When the following terms appear in this report, they have the meanings indicated below:
Match Group - includes the businesses of Match Group, Inc., which completed its initial public offering ("IPO"MTCH") on November 24, 2015; and consists of Dating, which includes all Datingbusinesses globally, and Non-dating, which consists of The Princeton Review.
HomeAdvisor - is a leading global home services digital marketplace that helps connect consumers with home professionals.provider of subscription dating products, operating a portfolio of dating brands, including Tinder, Match, PlentyOfFish and OkCupid. At December 31, 2018, IAC’s economic and voting interest in MTCH were 81.1% and 97.6%, respectively.
VideoANGI Homeservices ("ANGI") - consists primarilyconnects millions of homeowners to home service professionals through its portfolio of digital home service brands, including HomeAdvisor, Angie's List and Handy. At December 31, 2018, IAC’s economic and voting interest in ANGI were 83.9% and 98.1%, respectively.
Vimeo Electus, CollegeHumor, Notional, IAC Films- operates a global video platform for creative professionals, marketers and Daily Burn.enterprises to connect with their audiences, customers and employees.
Dotdash - is a portfolio of digital brands providing expert information and inspiration in select vertical content categories.
Applications - consists of ConsumerDesktop, , which includes our direct-to-consumer downloadable desktop applications including Apalon, which houses our mobileand the business-to-business partnership operations, and SlimWare, which houses our downloadable desktop software and services operations; and PartnershipsMosaic Group (previously referred to as Mobile), which includes our business-to-business partnership operations.is a leading provider of global subscription mobile applications comprised of the following businesses that we own and operate: Apalon, iTranslate, TelTech and Daily Burn, transferred from the Emerging & Other segment effective April 1, 2018.
PublishingEmerging & Other - consists of Premium Brands, which includes About.com, Dictionary.com, Investopedia andAsk Media Group, BlueCrew, The Daily Beast; and Ask & Other, which primarily includes Ask.com, CityGridBeast, College Humor Media, IAC Films and, for periods prior to its sale on June 30, 2016, ASKfm.
Other - consists oftransfer to the Applications segment effective April 1, 2018, Daily Burn. It also includes CityGrid, Dictionary.com, Electus, The Princeton Review, ShoeBuy, ASKfm and PriceRunner for periods prior to theirthe sales on December 30, 2016 and March 18, 2016, respectively.of these businesses (described below).
Operating metrics:Metrics:
In connection with the management of our businesses, we identify, measure and assess a variety of operating metrics. The principal metrics we use in managing our businesses are set forth below:
Match Group
Dating North America - consists of the financial results of the Dating businesses for customersand metrics associated with users located in the United States and Canada.
Dating International - consists of the financial results of the Dating businesses for customersand metrics associated with users located outside of the United States and Canada.
Direct Revenue - is revenue that is received directly received by Match Group from an end userusers of its products and includes both subscription and à la carte revenue.
Subscribers - are users who purchase a subscription to one of MTCH's products. Users who purchase only à la carte features are not included in Subscribers.
Average PMCSubscribers - is calculated by summing the number of paid members, or paid member count ("PMC"),Subscribers at the end of each day in the relevant measurement period and dividing itdivided by the number of calendar days in that period. PMC as of any given time represents the number of users with a paid membership at that time.
Average Revenue per Paying UserSubscriber ("ARPPU"ARPU") - is Direct Revenue from membersSubscribers in the relevant measurement period (whether in the form of subscription payments or à la carte payments)revenue from Subscribers) divided by the Average PMCSubscribers in such period and further divided by the number of calendar days in such period. This definition has been updated in the fourth quarter of 2016 to exclude non-subscriber Direct Revenue from users who are not Subscribers and have purchased only à la carte features is not included in ARPU.
ANGI Homeservices
previously reported ARPPU has been adjusted to conform to this definition.Marketplace Revenue - includes revenue from the HomeAdvisor and Handy domestic marketplace services, including consumer connection revenue for consumer matches, membership subscription revenue from HomeAdvisor service professionals and revenue from completed jobs sourced through the Handy platform. It excludes revenue from Angie's List, mHelpDesk, HomeStars and Felix.
Marketplace Service Requests - are fully completed and submitted domestic customer service requests on HomeAdvisor.to HomeAdvisor and completed jobs sourced through the Handy platform.
Marketplace Paying Service Professionals ("Marketplace Paying SPs") - are the number of HomeAdvisor and Handy domestic service professionals that had an active membershipsubscription and/or paid for leadsconsumer matches or completed a job sourced through the Handy platform in the last month of the period. An active HomeAdvisor subscription is a subscription for which HomeAdvisor was recognizing revenue on the last day of the relevant period.
Vimeo
Platform Revenue - primarily includes revenue from Software-as-a-Service ("SaaS") subscription fees and other related revenue from Vimeo subscribers.
Hardware Revenue - includes sales of our live streaming accessories.
Vimeo Ending Subscribers - is the number of subscribers to Vimeo's SaaS video tools at the end of the period.
Operating costsCosts and expenses:Expenses:
Cost of revenue - consists primarily of traffic acquisition costs and includes (i) the amortization of fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases and (ii) payments made to partners who distribute our Partnershipsbusiness-to-business customized browser-based applications and who integrate our paid listings into their websites and (ii) fees related to the distribution and the facilitation of in-app purchase of product features.websites. These payments include amounts based on revenue share and other arrangements. Cost of revenue also includes ShoeBuy's
cost of products soldhosting fees, compensation expense (including stock-based compensation expense) and shippingother employee-related costs for personnel engaged in data center operations and handling costs,MTCH customer service functions, credit card processing fees, production costs related to media produced byIAC Films, College Humor Media and, prior to its sale, Electus, and other businesses within our Video segment,content costs, expenses associated with the operation of the Company's data centers consisting compensation (including stock-based compensation) and other employee-related costs hosting fees, credit card processing fees, content acquisition costsassociated with publishing and rent.distributing the Angie's List Magazine. For periods prior to the sale of The Princeton Review, cost of revenue also includes rent and cost for teachers and tutors.
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 expenditureswhich include online marketing, including fees paid to search engines, social media sites and third parties that distribute our Consumerdirect-to-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.brands within our MTCH and ANGI segments, and compensation expense (including stock-based compensation expense) and other employee-related costs for ANGI's sales force and marketing personnel.
General and administrative expense - consists primarily of compensation expense (including stock-based compensation)compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, and human resources and customer service functions (except for MTCH which includes customer service costs within cost of revenue), fees for professional services (including transaction-related costs related to acquisitions and the Combination), facilities costs, bad debt expense, software license and maintenance costs and acquisition-related contingent consideration fair value adjustments (described below), fees for professional services. The customer service function at ANGI includes personnel who provide support to its service professionals and facilities costs.consumers.
Product development expense - consists primarily of compensation expense (including stock-based compensation)compensation expense) and other employee-related costs to the extent that they are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology.technology and software license and maintenance costs.
Acquisition-related contingent consideration fair value adjustments - relate to the portion of the purchase price (ofof certain acquisitions)acquisitions that is contingent upon the future operating performance of the acquired company. The amounts ultimately paid are generally dependent upon earnings performance and/or operating metrics as stipulated inof the relevant purchase agreements.acquired company. The fair value of the liability is estimated at the date of acquisition and adjusted each reporting period until
the liability is settled. IfSignificant changes in forecasted earnings and/or operating metrics will result in a significantly higher or lower fair value measurement. The changes in the payment dateestimated fair value of the liabilitycontingent consideration arrangements during each reporting period, including the accretion of the discount if the arrangement is longer than one year, are recognized in "General and administrative expense" in the accompanying consolidated statement of operations.
MTCH Term Loan - due November 16, 2022. The outstanding balance of the MTCH Term Loan as of December 31, 2018 is $425.0 million. The MTCH Term Loan bears interest at LIBOR plus 2.50% and was 5.09% and 3.85% at December 31, 2018 and 2017, respectively.
MTCH Credit Facility - On December 7, 2018, the MTCH $500 million revolving credit facility was amended and restated, and is due on December 7, 2023. The outstanding borrowings under the MTCH Credit Facility as of December 31, 2018 are $260.0 million and bear interest at LIBOR plus 1.50%, or approximately 4.00%. At December 31, 2017, there were no outstanding borrowings under the MTCH Credit Facility.
6.375% MTCH Senior Notes - MTCH's 6.375% Senior Notes due June 1, 2024, with interest payable each June 1 and December 1. The outstanding balance of the 6.375% MTCH Senior Notes as of December 31, 2018 is $400.0 million.
5.00% MTCH Senior Notes - MTCH's 5.00% Senior Notes due December 15, 2027, with interest payable each June 15 and December 15. The proceeds, along with cash on hand, were used to redeem the outstanding balance of the 6.75% MTCH Senior Notes. The outstanding balance of the 5.00% MTCH Senior Notes as of December 31, 2018 is $450.0 million.
5.625% MTCH Senior Notes - On February 15, 2019, MTCH completed a private offering of $350 million aggregate principal amount of its 5.625% Senior Notes due 2029. The proceeds were used to repay outstanding borrowings under the MTCH Credit Facility, to pay expenses associated with the offering, and for general corporate purposes.
6.75% MTCH Senior Notes - MTCH's 6.75% Senior Notes with an outstanding balance of $445.2 million were redeemed on December 17, 2017 with the proceeds from the 5.00% MTCH Senior Notes and cash on hand.
ANGI Term Loan - On November 5, 2018, the ANGI Term Loan was amended and restated, and is initially recorded netnow due on November 5, 2023. The outstanding balance of the ANGI Term Loan as of December 31, 2018 is $261.3 million. The ANGI Term Loan bears interest, payable quarterly, at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018, and has quarterly principal payments. The ANGI Term Loan bore interest at LIBOR plus 2.00%, or 3.38%, at December 31, 2017.
ANGI Credit Facility - On November 5, 2018, ANGI entered into a discount,five-year $250 million revolving credit facility. At December 31, 2018, there were no outstanding borrowings under the ANGI Credit Facility.
Exchangeable Notes - On October 2, 2017, a finance subsidiary of the Company issued $517.5 million aggregate principal of 0.875% Exchangeable Senior Notes due October 1, 2022, which notes are guaranteed by the Company and are exchangeable into shares of the Company's common stock. Interest is payable each April 1 and October 1. The outstanding balance of the Exchangeable Notes as of December 31, 2018 is $517.5 million. Each $1,000 of principal of the Exchangeable Notes is exchangeable for 6.5713 shares of the Company's common stock, which is amortized asequivalent to an expense each period. In a period whereexchange price of approximately $152.18 per share, subject to adjustment upon the acquired company is expectedoccurrence of specified events. A portion of the proceeds were used to perform better thanrepay the previous estimate,outstanding balance of the liability will be increased resulting in additional expense; and in a period when the acquired company is expected to perform worse than the previous estimate, the liability will be decreased resulting in income. The year-over-year impact can be significant, for example, if there is income in one period and expense in the other period.4.875% Senior Notes (described below).
Long-term debt:
20124.75% Senior Notes - IAC's 4.75% Senior Notes due December 15, 2022, with interest payable each June 15 and December 15, which commenced on June 15, 2013, a portion15. The outstanding balance of which were exchanged for the 2015 Match Group4.75% Senior Notes (described below) on November 16, 2015.as of December 31, 2018 is $34.5 million.
20134.875% Senior Notes - IAC's 4.875% Senior Notes duewith an outstanding balance of $361.9 million were redeemed on November 30, 2018,2017 with interest payable each May 30 and November 30, which commenced on 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 commenced on June 15, 2016, and which were issued in exchange for 2012 Senior Notes on November 16, 2015.
Match Group Term Loan - an $800 million, seven-year term loan entered into 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 prepay a portion of the $790 million of indebtedness outstanding underproceeds from the Match Group Term Loan. On December 8, 2016, a $40 million principal payment was made. In addition, the outstanding balance was repriced at LIBOR plus 3.25%, with a LIBOR floor of 0.75%. The outstanding balance of the Match Group Term Loan as of December 31, 2016 is $350 million.Exchangeable Notes.
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, which commenced on December 1, 2016, and which were issued on June 1, 2016.
Liberty BondsIAC Credit Facility - 5% New York City Industrial Development Agency Liberty Bonds due September 1, 2035. The Liberty Bonds were redeemed on September 1, 2015.On November 5, 2018, the IAC Credit Facility, under which IAC Group, LLC, a subsidiary of the Company is the borrower, was amended and restated, reducing the facility size from $300 million to $250 million,
and now expires on November 5, 2023. At December 31, 2018 and 2017, there were no outstanding borrowings under the IAC Credit Facility.
Non-GAAP financial measure:
| |
| • | Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") - is a non-GAAP financial measure. See "Principles of Financial Reporting" for the definition of Adjusted EBITDA and a reconciliation of net earnings (loss) attributable to IAC shareholders to operating income (loss) to consolidated Adjusted EBITDA for the years ended December 31, 2018, 2017, and 2016. - is a Non-GAAP financial measure. See "IAC's Principles of Financial Reporting" for the definition of Adjusted EBITDA. |
MANAGEMENT OVERVIEW
IAC is a leading mediahas majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish and Internet company comprised of widely known consumer brands, such asOkCupid, and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dictionary.com,Dotdash and The Daily Beast, Investopedia, and Match Group'samong many other online dating portfolio, which includes Match, Tinder, PlentyOfFish and OkCupid.businesses.
Sources of Revenue
Match Group's DatingMTCH's revenue is primarily derived directly from users in the form of recurring membershipsubscription fees, which typically provide unlimited access to a bundle of features for a specific period of time, and the balancestime. Revenue is also derived from à la carte features, where users pay a non-recurring fee for a specific action or event; with additional revenue generatedevent, and from online advertisers who pay to reach our large audiences. Non-dating
ANGI revenue is primarily earnedderived from (i) consumer connection revenue, which comprises fees received directlypaid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and booking fees from students for in-personcompleted jobs sourced through the Handy platform, and online test preparation classes, access(ii) membership subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered and geographic location of service. Effective with the Combination (described below), revenue is also derived from Angie's List (i) sales of time-based website, mobile and call center advertising to online test preparation materialsservice professionals and individual tutoring services.(ii) membership subscription fees from consumers.
HomeAdvisor'sVimeo revenue is derived primarily from annual and monthly Software-as-a-Service ("SaaS") subscription fees paid by memberscreators for premium capabilities and, to a lesser extent, sales of its networklive streaming hardware, software and professional services.
Dotdash revenue consists principally of home services professionals for consumer leadsdigital advertising revenue and memberships.affiliate commerce commission revenue. Digital advertising revenue is generated primarily through digital display advertisements sold directly and through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
A significantmeaningful portion of the revenue from ourof the Desktop business within the Applications segment and Publishing segments is derived from online advertising, most of whichthe Ask Media Group within the Emerging & Other segment is attributable to oura services agreement with Google Inc. ("Google"). The Company's serviceservices agreement became effective on April 1, 2016, following the expiration of the previous services agreement. The services agreement, and expires on March 31, 2020; however,2020. On February 11, 2019, the Company and Google amended the services agreement, effective as of April 1, 2020. The amendment extends the expiration date of the agreement to March 31, 2023; provided that beginning September 2020 and each September thereafter, either party may, choose toafter discussion with the other party, terminate the services agreement, effective March 31, 2019.on September 30 of the year following the year such notice is given. The services agreement requires that wethe Company comply with certain guidelines promulgated by Google. Google may generally unilaterally update its policies and guidelines without advance notice;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. Google’s policy changes related to its Chrome browser became effective on September 12, 2018 and negatively impacted the distribution of our business-to-consumer ("B2C") desktop products. The impact of these changes on revenue and profits in 2018 were modest as the Company optimized marketing spend in anticipation of the changes. However, we expect these changes to reduce revenue and profits of the Desktop business in the future, which among other reasons led to a $27.7 million impairment of the related indefinite-lived intangible asset in the fourth quarter of 2018. For the years ended December 31, 2018, 2017and2016 2015 and 2014,, consolidated revenue earned from Google was $825.2 million, $740.7 million and $824.4 million, $1.3 billion and $1.4 billion, respectively. For the years ended December 31, 2018, 2017 and 2016, 2015revenue earned from Google represents 73%, 83% and 2014, Google revenue represents 87% and 73%; 94% and 83%; and 97% and 83%, of Applications revenue and Publishing94%, 96% and 96% of Ask Media Group revenue (and 68%, 48% and 35% of Emerging & Other revenue), respectively.
The revenue earned by our Video
Revenue for the other businesses within the Emerging & Other segment is derived fromgenerated primarily through media production and distribution, subscriptionsadvertising and subscriptions. For periods prior to their sales: Dictionary.com and PriceRunner's revenue was derived principally from advertising.
Electus revenue was primarily generated through media production and distribution. The Princeton Review's revenue was primarily earned from fees received directly from students for in-person and online test preparation classes, access to online test preparation materials and individual tutoring services. ShoeBuy's revenue was derived principally from merchandise sales. PriceRunner's revenue was derived principally from advertising.
Strategic Partnerships, Advertiser Relationships and Online Advertising
A meaningful portionMost of the Company's online advertising revenue is attributable to thea services agreementagreement with Google described above. For the years ended December 31, 2016, 20152018, 2017 and 2014,2016, revenue earned from Google representsrepresents 19%, 22% and 26%, 40% and 45%, respectively, of our consolidated revenue.
We pay traffic acquisition costs, which consist of fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases of product features and payments made to partners who distribute our Partnershipsbusiness-to-business customized browser-based applications and who integrate our paid listings into their websites and fees related to the distribution and facilitation of in-app purchases of product features.websites. We also pay to market and distribute our services on third-party distribution channels, such as search engines and social media websites.websites such as Facebook. In addition, some of our businesses manage affiliate programs, pursuant to which we pay commissions and fees to third parties based on revenue earned. These distribution channels might also offer their own productsservices and services,products, as well as those of other third parties, which compete with those we offer.
We market and offer our productsservices and services directlyproducts to consumers through branded websites, and subscriptions, allowing consumers to transact directly with us in a convenient manner. We have made, and expect to continue to make, substantial investments in online and offline advertising to build our brands and drive traffic to our websites and consumers and advertisers to our businesses.
The cost2018 Developments
Acquisitions
On October 22, 2018, IAC acquired TelTech Systems, Inc. ("TelTech"), a developer of acquiring new consumers through onlinemobile applications, including RoboKiller and offline third-party distribution channels has increased, particularlyTapeACall, within its Applications segment.
On October 19, 2018, ANGI acquired Handy Technologies, Inc. ("Handy"), a leading platform in the case of online channels, as Internet commerce continues to growUnited States for connecting people looking for household services (primarily cleaning and competition in the markets in which IAC's businesses operate increases.handyman services) with top-quality, pre-screened independent service professionals.
2016 Developments
During 2016, the Company:
repurchased 6.3 million shares of common stock at an average price of $49.98 per share, or $315.3 million in aggregate; and
redeemed and repurchased $109.8 million of its 2013 Senior Notes and repurchased $16.6 million of its 2012 Senior Notes.Dispositions
On December 30, 2016, ShoeBuy, which was part of31, 2018, the Other segment, wasCompany sold CityGrid Media, LLC ("CityGrid"), an advertising network that integrated local content and advertising for approximately $70.0 million resulting in a pre-tax gain of $37.5 million.distribution to affiliated and third-party publishers across web and mobile platforms.
On December 8, 2016, Match Group made a $40 million principal payment on the Match Group Term Loan. In addition, the remaining outstanding balance of $350 million was repriced at LIBOR plus 3.25%, with a LIBOR floor of 0.75%. The previous interest charged on the Match Group Term Loan was LIBOR plus 4.50%, with a LIBOR floor of 1.00%31, 2018, ANGI sold its pay-per-call advertising service business, Felix Calls, LLC ("Felix").
On November 3, 2016, HomeAdvisor acquired a controlling interest in MyHammer Holding AG13, 2018, IAC sold Dictionary LLC ("MyHammer"Dictionary.com"), the leading home services marketplace in Germany.an online and mobile dictionary and thesaurus service.
On June 30, 2016, ASKfm, which was partOctober 29, 2018, IAC sold Electus, a production and producer service for both unscripted and scripted television and digit content, primarily for initial sale and distribution in the United States.
The combined pre-tax gains for these businesses sold in 2018 is $120.6 million and is included in "Other income (expense), net" in the accompanying consolidated statement of the Publishing segment, was sold resulting in a pre-tax loss of $3.8 million.operations.
Financing Transactions
On June 1, 2016, Match Group issued $400December 7, 2018, the MTCH Credit Facility of $500 million aggregate principalwas amended and restated, and is now due on December 7, 2023.
On November 5, 2018,
IAC's revolving credit facility was amended and restated, reducing the facility size from $300 million to $250 million, and now expires November 5, 2023.
ANGI entered into a five-year $250 million revolving credit facility and the ANGI Term Loan was amended and restated, and is now due on November 5, 2023.
Other Developments
On November 6, 2018, MTCH declared a special dividend of $2.00 per share on MTCH common stock and Class B common stock, payable on December 19, 2018 to shareholders of record on December 5, 2018. The total amount of 6.375% Senior Notes due June 1, 2024. The proceeds were usedthis dividend was $556.4 million, of which $451.2 million was paid to prepay a portion ofIAC and $105.1 million was paid to MTCH noncontrolling interests. MTCH funded the Match Group Term Loan.special dividend with cash on hand and borrowings under the MTCH Credit Facility.
On May 2, 2016, Vimeo, which is part of the Video segment, acquired VHX, a platform for premium over-the-top subscription video channels.
On March 18, 2016, PriceRunner, which was part of the Other segment, was sold for $96.6 million resulting in a pre-tax gain of $12.0 million.
20162018 Consolidated Results
In 2016, the Company's revenue decreased 3% and operating income declined $212.2Revenue increased $955.7 million, or 29%, to a loss of $32.6 million; however, the Company delivered 3% Adjusted EBITDA growth. Revenue declined$4.3 billion due primarily to significant decreasesgrowth from PublishingMTCH of $399.2 million, an increase from ANGI of $395.9 million due, in part, to the Combination (defined below), and Applications, partially offset by strong growth at Match Groupincreases of $59.7 million from Emerging & Other, $56.3 million from Vimeo and HomeAdvisor. The operating$40.1 million from Dotdash.
Operating income decline, despite higher Adjusted EBITDA, wasincreased $376.7 million, or 200%, to $565.1 million due primarily to increasesan increase in Adjusted EBITDA of $261.3$413.5 million, a decrease of $26.2 million in goodwill impairment charges, $9.5 million in depreciationstock-based compensation expense, and a change of $18.0$4.3 million in acquisition-related contingent consideration fair value adjustments, partially offset by a decreaseincreases of $60.5$66.3 million in amortization of intangibles.intangibles and $1.1 million in depreciation. The increasedecrease in goodwill impairmentstock-based compensation expense was due primarily to a decrease of $51.4 million in modification and acceleration charges is duerelated to the write-off of goodwill of $275.4Combination ($70.6 million at Publishing in the current year period2018 compared to the write-off of goodwill of $14.1 million at ShoeBuy in the prior year period. The change in acquisition-related contingent consideration fair value adjustments reflects expense in the current year period of $2.6 million versus income of $15.5$122.1 million in 2017), partially offset by the prior year period.modification of certain awards in 2018, due in part, to the sale of businesses during the fourth quarter of 2018 and the issuance of new equity awards since 2017. The decreaseincrease in amortization of intangibles was due primarily to a reductionthe Combination and the inclusion in impairment charges during the year. The Company recorded in 20162018 of an impairment charge of $11.6$27.7 million compared to an impairment charge in 2015 of $88.0 million allat Applications related to certain Publishing indefinite-liveda trade names. The name at the Desktop business.
Adjusted EBITDA increase wasincreased $413.5 million, or 72%, to $988.8 million due primarily driven by strongto growth of $209.6 million from Match GroupANGI, $185.0 million from MTCH, $24.1 million from Dotdash and HomeAdvisor and reduced losses$10.3 million from Video,Emerging & Other, partially offset by declinesa decrease of $95.4$4.9 million from Applications and increased losses of $6.3 million and $52.0$4.4 million from PublishingCorporate and Applications,Vimeo, respectively.
Other eventsEvents affecting year-over-year comparability include:
| |
| (i) | salesthe combination on September 29, 2017 of the businesses comprising the Company's former HomeAdvisor segment and Angie's List, Inc. ("Angie's List") under a new publicly traded company called ANGI Homeservices Inc. (the "Combination"), which comprises the Company's ANGI segment. Stock-based compensation expense related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in 2016:the Combination, is expected to be approximately $35 million in 2019 and $20 million in 2020; |
PriceRunner on March 18, 2016 (reflected in the Other segment);
ASKfm on June 30, 2016 (reflected in the Publishing segment); and
ShoeBuy on December 30, 2016 (reflected in the Other segment).
| |
| (ii) | acquisitionsthe adoption of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, on January 1, 2018. For the year ended December 31, 2018, the adoption of ASU No. 2014-09 increased consolidated operating income by $2.6 million, due primarily to a reduction in 2015:sales commissions expense of $4.9 million at ANGI due to the capitalization and amortization of certain sales commissions. For the year ended December 31, 2018, the effect of ASU No. 2014-09 decreased consolidated revenue by $0.5 million; |
Eureka on April 24, 2015 (reflected in the Match Group segment); and
PlentyOfFish on October 28, 2015 (reflected in the Match Group segment).
| |
| (iii) | acquisitions in 2014:the adoption of FASB ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018. For the year ended December 31, 2018, the adoption of ASU No. 2016-01 |
increased other income (expense), net by $124.2 million, which includes gross unrealized gains related to the ValueClick O&O website businesses on January 10, 2014 (reflectedremeasurement of Company's remaining investments in an investee following the Publishing segment, except for PriceRunner which was reflected insale of a portion of the Other segment);
SlimWare on April 1, 2014 (reflected inCompany's investment during the Applications segment);
The Princeton Review on August 1, 2014 (reflected in the Match Group segment);
LoveScout24 (formerly known as FriendScout24) on August 31, 2014 (reflected in the Match Group segment);second quarter of 2018; and
Apalon on November 3, 2014 (reflected in the Applications segment).
| |
| (iv) | costsin addition to those listed under "2018 Developments" above, the acquisitions and dispositions of $4.9 million, $16.8 million and $4.9 million inthe following businesses: |
|
| | | | |
| Acquisitions: | | Reportable Segment: | | Acquisition Date: |
| BlueCrew - controlling interest | | Emerging & Other | | February 26, 2018 |
| Hinge - controlling interest * | | MTCH | | Second quarter of 2018 |
| iTranslate | | Applications | | March 15, 2018 |
| HomeStars Inc. ("HomeStars") - controlling interest | | ANGI | | February 8, 2017 |
| MyBuilder Limited ("MyBuilder") - controlling interest | | ANGI | | March 24, 2017 |
| Livestream | | Vimeo | | October 18, 2017 |
| My Hammer Holding AG ("MyHammer) - controlling interest | | ANGI | | November 3, 2016 2015 and 2014, respectively, related |
_______________________
* In the fourth quarter of 2018, MTCH acquired the remaining noncontrolling interests in Hinge.
|
| | | | |
| Dispositions: | | Reportable Segment: | | Sale Date: |
| The Princeton Review | | Emerging & Other | | March 31, 2017 |
| PriceRunner | | Emerging & Other | | March 18, 2016 |
| ASKfm | | Emerging & Other | | June 30, 2016 |
| ShoeBuy | | Emerging & Other | | December 30, 2016 |
| |
| (v) | the transfer of Daily Burn from the Emerging & Other segment to the consolidation and streamlining of technology systems and European operations at the Dating businesses (reflected in the Match Group segment). This project is complete as of December 31, 2016.Applications segment effective April 1, 2018. |
| |
(v)(vi) | restructuring charges in 2016 of $15.6$14.5 million, $2.6 million and $2.6$1.1 million at the PublishingAsk Media Group, Applications and Applications segments,Dotdash, respectively, related to an effort to manage overallreduce costs resulting fromin light of significant declines in revenue from the new Google contract, which was effective April 1, 2016, as well as declines from certain other legacy businesses. |
Results of Operations for the Years Ended December 31, 2016, 20152018, 2017 and 20142016
Revenue
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Match Group | $ | 1,222,526 |
| | $ | 202,095 |
| | 20 | % | | $ | 1,020,431 |
| | $ | 132,163 |
| | 15 | % | | $ | 888,268 |
| $ | 1,729,850 |
| | $ | 399,189 |
| | 30% | | $ | 1,330,661 |
| | $ | 212,551 |
| | 19% | | $ | 1,118,110 |
|
| HomeAdvisor | 498,890 |
| | 137,689 |
| | 38 | % | | 361,201 |
| | 77,660 |
| | 27 | % | | 283,541 |
| |
| Video | 228,649 |
| | 15,332 |
| | 7 | % | | 213,317 |
| | 30,863 |
| | 17 | % | | 182,454 |
| |
| ANGI Homeservices | | 1,132,241 |
| | 395,855 |
| | 54% | | 736,386 |
| | 237,496 |
| | 48% | | 498,890 |
|
| Vimeo | | 159,641 |
| | 56,309 |
| | 54% | | 103,332 |
| | 24,527 |
| | 31% | | 78,805 |
|
| Dotdash | | 130,991 |
| | 40,101 |
| | 44% | | 90,890 |
| | 12,977 |
| | 17% | | 77,913 |
|
| Applications | 604,140 |
| | (156,608 | ) | | (21 | )% | | 760,748 |
| | (15,959 | ) | | (2 | )% | | 776,707 |
| 582,287 |
| | 4,289 |
| | 1% | | 577,998 |
| | (26,142 | ) | | (4)% | | 604,140 |
|
| Publishing | 407,313 |
| | (284,373 | ) | | (41 | )% | | 691,686 |
| | (99,863 | ) | | (13 | )% | | 791,549 |
| |
| Other | 178,949 |
| | (5,146 | ) | | (3 | )% | | 184,095 |
| | (3,739 | ) | | (2 | )% | | 187,834 |
| |
| Emerging & Other | | 528,250 |
| | 59,661 |
| | 13% | | 468,589 |
| | (294,020 | ) | | (39)% | | 762,609 |
|
| Inter-segment elimination | (585 | ) | | (40 | ) | | (7 | )% | | (545 | ) | | 261 |
| | 33 | % | | (806 | ) | (368 | ) | | 249 |
| | 40% | | (617 | ) | | (32 | ) | | (6)% | | (585 | ) |
| Total | $ | 3,139,882 |
| | $ | (91,051 | ) | | (3 | )% | | $ | 3,230,933 |
| | $ | 121,386 |
| | 4 | % |
| $ | 3,109,547 |
| $ | 4,262,892 |
| | $ | 955,653 |
| | 29% | | $ | 3,307,239 |
| | $ | 167,357 |
| | 5% |
| $ | 3,139,882 |
|
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
Match GroupMTCH revenue increased 20%30% to $1.7 billion driven by a 23% increase in Dating revenue attributable toInternational Direct Revenue growth of $234.8 million, or 43%, and North America Direct Revenue growth of $161.1 million, or 22%. Both International and North America Direct Revenue growth were driven by higher Average PMC at both North AmericaSubscribers, up 31% to 3.7 million and International, up 22% and 46%,17% to 4.2 million, respectively, due primarily to continued growth in paying membersSubscribers at Tinder. Total ARPU increased 6% due to Tinder, andas Subscribers purchased premium subscriptions, such as Tinder Gold, as well as additional à la carte features.
ANGI revenue increased 54% to $1.1 billion driven by the Marketplace growth of $193.1 million, or 33%, the contribution from the 2015 acquisitionAngie's List and growth of PlentyOfFish. This revenue growth was partially offset by a 6% decline in ARPPU. North America and International ARPPU decreased 5% and 7%$12.6 million, or 22%, respectively, due primarily to the continued mix shift towards lower ARPPU brands, including Tinder and PlentyOfFish, which have lower price points compared to Match Group's more established brands. North America ARPPU decline was partially offset by an increase in mix-adjusted rates. Non-dating revenue decreased 6% reflecting fewer in-person SAT test preparation courses and in-person tutoring sessions, partially offset by an increase in online and self-paced services.
HomeAdvisor revenue increased 38% due primarily to 44% growth at the domestic business and 18% growth at the international business. Domestic revenueEuropean businesses. Marketplace Revenue growth was driven by a 41%30% increase in Marketplace Service Requests to 23.5 million and a 18% increase in Marketplace Paying SPs and a 34% increaseto 214,000. Angie's List revenue reflects the write-off of deferred revenue due to the Combination of $5.5 million in Service Requests. International revenue2018 compared to $7.8 million in 2017. Revenue growth at the European businesses was driven by organic growth across all regions as well as the acquisition of a controlling interest in MyHammerMyBuilder on November 3, 2016.March 24, 2017, as well as growth across other regions. European revenue also benefited from the weakening of the U.S. dollar relative to the Euro.
Vimeo revenue grew 54% to $159.6 million due to Platform revenue growth of $47.0 million, or 47%, and Hardware revenue growth of $9.3 million, both due in part, to the contribution of Livestream. Platform revenue growth was further impacted by a 9% increase in Vimeo Ending Subscribers to 952,000 and average revenue per user growth of 31%.
VideoDotdash revenue grew 44% to $131.0 million due to strong advertising growth across several verticals, particularly Verywell and The Spruce, as well as growth in affiliate commerce commission revenue.
Applications revenue increased 7%1% to $582.3 million due to an increase of $67.7 million, or 121%, in Mosaic Group, partially offset by a decline of $63.4 million, or 12%, in Desktop. The increase in Mosaic Group revenue was driven primarily by growth of 55% related to the ongoing transition to subscription products as well as higher marketing expense and new products, contributions from iTranslate and TelTech, and the transfer of Daily Burn from the Emerging & Other segment effective April 1, 2018. The decline at Desktop was driven by the business-to-business partnership operations' loss of certain partners and a decrease in the direct-to-consumer desktop applications business due primarily to growth at Electus, Vimeo and Daily Burn,lower revenue per query. The adoption of ASU No. 2014-09 resulted in a net increase in revenue of $0.8 million (an increase of $7.3 million in Mosaic Group, partially offset by a decrease of $6.5 million in Desktop).
Emerging & Other revenue increased 13% to $528.3 million due primarily to higher revenue at Ask Media Group due to growth in paid traffic, primarily in international markets, and the contribution from BlueCrew, partially offset by the sales of Electus and Dictionary.com in the fourth quarter of 2018, the sale of The Princeton Review in 2017, lower revenue from IAC Films as the prior year benefited from the release of the movie While We're Young.
Applications revenue decreased 21% due to a 39% decline in Partnerships and a 12% 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 monetization, partially offset by strong growth at Apalon and SlimWare, which together comprised 12% of total Applications revenue in 2016.
Publishing revenue decreased 41% due to 54% 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 paid search traffic at About.com, mainly attributable to the new Google contract, partially offset by strong growth at Investopedia and The Daily Beast.
Other revenue decreased 3% due to the sale of PriceRunner on March 18, 2016, partially offset by growth at ShoeBuy.a film in the third quarter of 2017 and the transfer of Daily Burn.
For the year ended December 31, 20152017 compared to the year ended December 31, 20142016
Match GroupMTCH revenue increased 15%, or 20% excluding the effects of foreign exchange,19% to $1.3 billion driven by a 9% increase in Dating revenue attributable to 8%International Direct Revenue growth inof $146.5 million, or 37%, and North America Direct revenue.Revenue growth of $67.4 million, or 10%. Both International and North America Direct revenueRevenue growth was primarilywere driven by higher Average PMC at both North AmericaSubscribers, up 33% to 2.8 million and International, up 13% and 31%,9% to 3.6 million, respectively, due mainlyprimarily to Tinder,continued growth in Subscribers at Tinder. Total ARPU increased 1%.
ANGI revenue increased 48% to $736.4 million driven by Marketplace growth of $152.5 million, or 36%, and growth of $20.4 million, or 55%, at the European businesses. Marketplace Revenue growth was driven by a 37% increase in Marketplace Service Requests to 18.1 million and a 26% increase in Marketplace Paying SPs to 181,000. Revenue in 2017 includes the contribution from Angie's List since the date of Combination, which reflects the write-off of deferred revenue of $7.8 million. Revenue growth at the European businesses was driven by the acquisitions of controlling interests in MyHammer on November 3, 2016 and MyBuilder, as well as by organic growth across other regions.
Vimeo revenue grew 31% to $103.3 million due to Platform revenue growth of $20.8 million, or 26%, and Hardware revenue of $3.7 million both due in part, to the contribution of Livestream. Platform revenue growth was further impacted by a 14% increase in Vimeo Ending Subscribers to 873,000 and average revenue per user growth of 11%.
Dotdash revenue grew 17% to $90.9 million due to an increase in organic traffic and advertising revenue.
Applications revenue decreased 4% due to a decline of $41.2 million, or 7%, in Desktop, partially offset by 9% lower ARPPU due to brand mix shiftsan increase of $15.0 million, or 37%, in Mosaic Group. The decline at Desktop were driven by the business-to-business partnership operations' loss of certain partners, and foreign exchange effects. Excluding foreign exchange effects, total Dating revenue and International Direct revenue would have increased 15% and 21%, respectively. Non-dating revenue increased 114% principally due toa decrease in the full year contribution from The Princeton Review, which was acquired on August 1, 2014.
See "IAC's Principles of Financial Reporting" for a discussion and reconciliation of effects of foreign exchange on Match Group revenue.
HomeAdvisor revenue increased 27%direct-to-consumer desktop applications business due primarily to 43% growth at the domestic business,lower revenue per query, partially offset by international declineshigher subscription revenue. The increase in Mosaic Group revenue was driven by higher advertising and subscription revenue.
Emerging & Other revenue decreased 39% to $468.6 million due primarily to the restructuringsales of certain European operationsShoeBuy, The Princeton Review and PriceRunner, declines in paid traffic primarily as a result of the fourth quarter of 2014. Domestic revenue growth was driven by 49% higher Service RequestsGoogle contract at Ask Media Group and a 46% increase in Paying SPs.
Video revenue grew 17% due primarily to strong growthdecline at Vimeo, Daily Burn and Electus.
Applications revenue decreased 2% due to a 27% decline in Partnerships,College Humor Media, partially offset by 16% growth in Consumer. Consumer growth was driven by higher revenue from our downloadable desktop applications, including SlimWare,the sales of TheMeyerowitz Stories (New and Selected) and The Legacy of a full year contribution from Apalon, our mobile applications business, which was acquired on November 3, 2014.Whitetail Deer Hunter and the release of Lady Bird at IAC Films, and an increase at Electus.
Publishing revenue decreased 13% due to 31% lower Ask & Other revenue, partially offset by 29% higher Premium Brands revenue. Ask & Other revenue decreased primarily to a decline in revenue at Ask.com and certain legacy businesses. Premium Brands revenue increased due primarily to strong growth at About.com and Investopedia.
Other revenue decreased 2% due to lower revenue at PriceRunner.
Cost of revenue
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Cost of revenue | $755,730 | | $(22,431) | | (3)% | | $778,161 | | $(82,043) | | (10)% | | $860,204 | |
| Cost of revenue (exclusive of depreciation shown separately below) | | $911,146 | | $260,138 | | 40% | | $651,008 | | $(104,722) | | (14)% | | $755,730 |
| As a percentage of revenue | 24% | | | | 24% | | | | 28% | 21% | | | | 20% | | | | 24% |
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
Cost of revenue in 2018 increased from 2017 due to increases of $130.5 million from MTCH, $79.0 million from Emerging & Other, $21.7 million from ANGI and $19.0 million from Vimeo.
The MTCH increase was due primarily to an increase of $123.8 million in in-app purchase fees as MTCH's revenues are increasingly sourced through mobile app stores.
The Emerging & Other increase was due primarily to an increase of $143.2 million in traffic acquisition costs principally driven by higher revenue at Ask Media Group, primarily in international markets, and the expense from the inclusion of BlueCrew, which was acquired on February 26, 2018, partially offset by a decrease of $71.1 million in production costs, driven primarily by the sale of Electus in 2018 and lower revenue from IAC Films, the sale of The Princeton Review in 2017 and the transfer of Daily Burn to Applications.
The ANGI increase was due primarily to increases of $7.2 million in traffic acquisition costs, $7.0 million in credit card processing fees, including $3.5 million from the inclusion of Angie's List, and higher Marketplace Revenue, $3.7
million in costs associated with publishing and distributing the Angie's List Magazine and $2.5 million in hosting fees, principally from the inclusion of Angie's List.
The Vimeo increase was due primarily to the expense from the inclusion of Livestream.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Cost of revenue in 2017 decreased from 20152016 due to decreases of $54.7$180.1 million from ApplicationsEmerging & Other and $47.0$20.9 million from Publishing,Applications, partially offset by increases of $56.0$83.9 million from Match Group, $12.4MTCH, $8.2 million from OtherANGI and $7.7$6.9 million from Video.Vimeo.
The Emerging & Other decrease was due primarily to the sales of ShoeBuy and The Princeton Review, a reduction of $13.2 million in traffic acquisition costs and $8.4 million in rent expense due to vacating a data center in the fourth quarter of 2016 at Ask Media Group and lower production costs at College Humor Media, partially offset by an increase in production costs at IAC Films related to the sales of TheMeyerowitz Stories (New and Selected) and The Legacy of a Whitetail Deer Hunter and the release of Lady Bird in 2017.
The Applications decrease was due primarily to a reduction of $52.0$16.6 million in traffic acquisition costs driven by a decline in revenue at Partnerships.Desktop and a decrease of $2.9 million in compensation expense due, in part, to the reductions in workforce in 2016.
The PublishingMTCH increase was due primarily to increases of $75.4 million in in-app purchase fees and $5.9 million in hosting fees. The increases were due primarily to the growth at Tinder.
The ANGI increase was due primarily to the inclusion of expense of $3.7 million from Angie's List resulting from the Combination, an increase of $2.8 million in credit card processing fees due to higher revenue and an increase of $1.6 million in hosting fees, partially offset by a reduction in traffic acquisition costs of $0.4 million.
The Vimeo increase was due primarily to the expense from the inclusion of Livestream and an increase of $2.6 million in hosting fees due to subscription growth.
Selling and marketing expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Selling and marketing expense | $1,519,440 | | $138,219 | | 10% | | $1,381,221 | | $134,124 | | 11% | | $1,247,097 |
| As a percentage of revenue | 36% | | | | | | 42% | | | | | | 40% |
For the year ended December 31, 2018 compared to the year ended December 31, 2017
Selling and marketing expense in 2018 increased from 2017 due to increases of $77.4 million from ANGI, $44.3 million from MTCH and $26.1 million from Vimeo, partially offset by a decrease of $13.2 million from Emerging & Other.
The ANGI increase was due primarily to increases in advertising expense of $53.7 million, reflecting the impact from the inclusion of Angie's List, compensation expense of $12.9 million and facilities costs of $5.1 million. The increase in advertising expense was due primarily to increased investments in online marketing and television spend. Compensation expense increased due primarily to growth in the sales force, partially offset by a decrease in stock-based compensation expense of $22.4 million and the inclusion of $7.4 million in severance and retention costs in 2017 related to the Combination. The decrease in stock-based compensation expense reflects decreases of $13.3 million in expense due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards ($1.6 million in 2018 compared to $14.8 million in 2017), and $9.0 million in expense related to previously issued Angie's List equity awards, including the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination ($0.6 million in 2018 compared to $9.6 million in 2017). Compensation expense in 2018 also reflects a reduction in sales commissions expense of $4.9 million due to the adoption of ASU No. 2014-09. As a percentage of revenue, selling
and marketing expense declined due, in part, to accelerated revenue growth driven by capacity expansion efforts combined with marketing optimization efforts at HomeAdvisor.
The MTCH increase was due primarily to higher advertising expense of $45.6 million due primarily to increased marketing expense as a result of marketing initiatives at Tinder, Pairs, PlentyOfFish, OkCupid and Meetic, and the inclusion of Hinge, acquired in 2018, partially offset by lower offline marketing spend at Match and Match Affinity brands. As a percentage of revenue, selling and marketing expense decreased due primarily to the ongoing shift towards brands with lower marketing spend.
The Vimeo increase was due primarily to increased investment in marketing of $13.2 million, $8.8 million of expense from the inclusion of Livestream and an increase in compensation expense of $3.2 million, due, in part, to an increase in the sales force.
The Emerging & Other decrease was due primarily to reductionsthe transfer of $40.0Daily Burn to the Applications segment, the sale of The Princeton Review and a decrease in online marketing of $9.0 million in traffic acquisition costs and $4.6 million in content costs driven by a decline in revenue at Ask.com and certain legacy businesses,Ask Media Group, partially offset by $9.2higher compensation expense of $6.8 million at Electus and the expense from the inclusion of BlueCrew. Selling and marketing expense was further impacted by an increase of $2.2 million in restructuring chargescompensation expense at The Daily Beast due, in part, to an increase in the currentsales force.
For the year period relatedended December 31, 2017 compared to vacating a data center facilitythe year ended December 31, 2016
Selling and severance costsmarketing expense in connection with a reduction in workforce.
2017 increased from 2016 due to increases of $157.3 million from ANGI, $26.5 million from MTCH and $11.7 million from Vimeo, partially offset by decreases of $53.0 million from Emerging & Other and $6.7 million from Applications.
The Match GroupANGI increase was due primarily to a significanthigher advertising expense of $78.2 million, of which $5.3 million was from the inclusion of Angie's List, an increase of $64.9 million in compensation expense, of which $24.4 million was from the inclusion of Angie's List, and $9.5 million of expense from acquisitions made prior to the Combination. The increase in in-app purchase fees across multiple brands,advertising expense was due primarily to increased investments in online marketing and television spend. Compensation increased due primarily to an increase of $24.9 million in stock-based compensation expense, of which $9.8 million was from the inclusion of Angie's List, an increase in the sales force and the inclusion of $7.4 million in severance and retention costs related to the Combination. The increase in stock-based compensation expense reflects $14.8 million of expense in 2017 due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards and $9.6 million of expense in 2017 related to previously issued Angie's List equity awards, including the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination.
The MTCH increase was due primarily to higher advertising expense of $15.3 million and an increase in compensation expense of $9.1 million. The increase in advertising expense was due primarily to an increase in strategic investments in certain international markets at Tinder and increased marketing related to the 2015 acquisitionslaunch of PlentyOfFish and Eureka,a new brand by Meetic in Europe, partially offset by a mixreduction in marketing spend at MTCH's affinity brands. The increase in compensation expense was primarily related to an increase in headcount at Tinder and the employer portion of payroll taxes paid in connection with the exercise of MTCH options. As a percentage of revenue, selling and marketing expense decreased due primarily to a continued shift towards brands with lower marketing spend and reductions in marketing spend at the affinity brands.
The Vimeo increase was due primarily to increases in marketing expense of $10.6 million and $2.3 million of compensation expense.
The Emerging & Other decrease was due primarily to the sales of ShoeBuy and The Princeton Review, decreases of $21.1 million and $4.5 million in online marketing and compensation expense, respectively, at Ask Media Group and a decrease of $3.5 million in offline marketing at Daily Burn, partially offset by increases in marketing expense at IAC Films of $6.5 million and compensation expense at Electus of $1.7 million. Online marketing and compensation expense at Ask Media Group decreased principally related to lower revenue resulting from changes in the Google contract and reductions in workforce that occurred in 2016, including $3.1 million in restructuring costs in 2016.
The Applications decrease was due primarily to lower online marketing expense of $10.0 million at Desktop, partially offset by higher online marketing expense of $6.5 million at Mosaic Group.
General and administrative expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| General and administrative expense | $774,079 | | $54,822 | | 8% | | $719,257 | | $188,811 | | 36% | | $530,446 |
| As a percentage of revenue | 18% | | | | | | 22% | | | | | | 17% |
For the year ended December 31, 2018 compared to the year ended December 31, 2017
General and administrative expense in 2018 increased from 2017 due to increases of $36.8 million from Corporate, $21.7 million from ANGI and $5.9 million from Vimeo, partially offset by a decrease of $14.8 million from Emerging & Other.
The Corporate increase was due primarily to higher margin online products from in-person courses at Non-dating.compensation costs, including an increase in stock-based compensation expense related to a mark-to-market adjustment.
The OtherANGI increase was due primarily to an increase of $19.7 million in costbad debt expense due, in part, to higher Marketplace Revenue, increases of products sold at ShoeBuy due to increased sales, partially offset by$8.8 million in software license and maintenance costs and $2.9 million in facilities costs, both reflecting the saleimpact from the inclusion of PriceRunner.
The Video increase was due primarily to a net increaseAngie's List, $2.4 million in production costs at our media and video businessescompensation expense and an increase in hosting fees related to Vimeo's subscription growth, increased video plays and expanded On Demand catalog. These increases werecustomer service expense of $3.4 million, partially offset by a reduction in investmenttransaction and integration-related costs principally related to the Combination of $21.9 million. The increase in contentcompensation expense was due primarily to an increase in headcount following the Combination and existing business growth as well as $3.8 million of expense from the inclusion of Handy, almost entirely offset by a decrease of $25.6 million in stock-based compensation expense and a decrease of $9.2 million in severance and retention costs atrelated to the Combination ($2.7 million in 2018 compared to $11.8 million in 2017). The decrease in stock-based compensation expense reflects decreases of $12.9 million in expense due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards ($52.9 million in 2018 compared to $65.7 million in 2017) and $9.6 million in expense related to previously issued Angie's List equity awards, including the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination ($8.1 million in 2018 compared to $17.7 million in 2017), and the inclusion in 2017 of a modification charge related to a HomeAdvisor equity award, partially offset by acceleration of expense related to certain equity awards in the fourth quarter of 2018 in connection with the chief executive officer transition and the issuance of new equity awards since 2017.
The Vimeo increase was due primarily to $4.9 million of expense from the inclusion of Livestream and an increase in 2016.legal costs in 2018.
The Emerging & Other decrease was due primarily to the sale of The Princeton Review, the transfer of Daily Burn to the Applications segment, a favorable legal settlement of $4.8 million in 2018, partially offset by $3.2 million of expense from the inclusion of BlueCrew.
For the year ended December 31, 20152017 compared to the year ended December 31, 20142016
Cost of revenueGeneral and administrative expense in 2015 decreased2017 increased from 20142016 due to decreasesincreases of $87.8$192.9 million from Publishing and $65.3ANGI, $44.8 million from Applications,MTCH and $20.0 million from Corporate, partially offset by decreases of $64.8 million from Emerging & Other and $10.2 million from Applications.
The ANGI increase was due primarily to higher compensation expense of $130.7 million, of which $38.4 million was from the inclusion of Angie's List, and $24.3 million in costs related to the Combination including transaction related costs of $14.3 million and integration related costs of $10.0 million. The increase in compensation expense was due primarily to an increase of $100.5 million in stock-based compensation expense, of which $18.0 million was from the inclusion of Angie's List, an increase in headcount from business growth and the inclusion of $11.8 million in severance and retention costs in 2017 related to the Combination. The increase in stock-based compensation expense reflects $65.7 million of expense in 2017 due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards, and $17.7 million of expense in 2017 related to previously issued Angie's List equity awards, including the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination as well as a modification charge
related to a HomeAdvisor equity award in 2017. General and administrative expense also includes increases of $58.0$9.2 million in bad debt expense due, in part, to higher Marketplace Revenue, $3.9 million in customer service expense and $3.2 million in software license and maintenance costs, as well as $9.8 million of expense from Match Group and $10.4 million from Video.acquisitions made prior to the Combination.
The PublishingMTCH increase was due primarily to an increase of $20.6 million in compensation expense, a change of $14.5 million in acquisition-related contingent consideration fair value adjustments (expense of $5.3 million in 2017 compared to income of $9.2 million in 2016) and an increase of $6.8 million in professional fees. The increase in compensation expense was due to an increase of $9.1 million in stock-based compensation expense due primarily to an increase in expense related to a subsidiary denominated equity award held by a non-employee, which award was settled in the third quarter of 2017, the employer portion of payroll taxes paid in connection with the exercise of MTCH options and an increase in headcount from business growth. The increase in professional fees was due primarily to the settlement of the Tinder equity plan.
The Corporate increase was due primarily to higher compensation costs in 2017, including an increase in stock-based compensation expense due primarily to the issuance of new equity awards since 2016, and higher professional fees.
The Emerging & Other decrease was due primarily to a reductionthe sales of $87.1The Princeton Review, ShoeBuy and ASKfm, and the effect of the reductions in workforce in 2016, including $2.3 million in traffic acquisitionrestructuring costs included in 2016 at Ask Media Group.
The Applications decrease was due primarily to the inclusion in 2016 of $12.0 million in expense related to an acquisition-related contingent consideration fair value adjustment and a $2.9 million favorable legal settlement in 2017.
Product development expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Product development expense | $309,329 | | $58,450 | | 23% | | $250,879 | | $38,114 | | 18% | | $212,765 |
| As a percentage of revenue | 7% | | | | | | 8% | | | | | | 7% |
For the year ended December 31, 2018 compared to the year ended December 31, 2017
Product development expense in 2018 increased from 2017 due to increases of $30.9 million from MTCH, $13.2 million from ANGI, $9.8 million from Vimeo and $6.0 million from Dotdash.
The MTCH increase was due primarily to an increase of $28.8 million in compensation expense, due primarily to higher headcount at Tinder.
The ANGI increase was due primarily to increases of $4.9 million in compensation expense and $4.5 million in software license and maintenance costs, reflecting the impact from the inclusion of Angie's List. The increase in compensation expense was due primarily to increased headcount, partially offset by a decrease of $6.1 million in stock-based compensation expense resulting from a lower modification charge related to the Combination.
The Vimeo increase was due primarily to $8.7 million of expense from the inclusion of Livestream.
The Dotdash increase was due primarily to an increase of $5.7 million in compensation expense, due primarily to higher headcount.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Product development expense in 2017 increased from 2016 due to increases of $27.3 million from ANGI, $23.0 million from MTCH and $3.6 million from Vimeo, partially offset by decreases of $10.9 million from Emerging & Other and $4.4 million from Applications.
The ANGI increase was due primarily to an increase of $23.0 million in compensation expense, of which $6.8 million was from the inclusion of Angie's List, and $2.9 million of expense from acquisitions made prior to the Combination. The increase in compensation expense was due to an increase of $14.5 million in stock-based compensation expense principally due to the modification charge related to the Combination and increased headcount.
The MTCH increase was due primarily to an increase of $20.7 million in compensation expense driven by an increase of $14.4 million related to increased headcount and the employer portion of payroll taxes paid in connection with the exercise of MTCH options, and an increase of $6.3 million in stock-based compensation expense due primarily byto new grants issued since 2016.
The Vimeo increase was due primarily to $2.2 million of expense from the inclusion of Livestream.
The Emerging & Other decrease was due primarily to the sales of The Princeton Review and ASKfm and a declinedecrease of $4.3 million in revenuecompensation expense due, in part, to reductions in workforce in 2016, including $1.2 million in restructuring costs in 2016 at Ask.com.Ask Media Group.
The Applications decrease was due primarily to a reductiondecrease of $72.2 million in traffic acquisition costs driven by a decline in revenue at Partnerships.
The Match Group increase was due primarily to a significant increase in in-app purchase fees given that its native mobile apps were largely introduced in the second quarter of 2014, the full year contribution from the acquisition of The Princeton Review and higher hosting fees driven by growth in users and product features.
The Video increase was due primarily to increases in hosting fees and content costs related to Vimeo's expanded On Demand catalog.
Selling and marketing expense |
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Selling and marketing expense | $1,245,263 | | $(100,313) | | (7)% | | $1,345,576 | | $198,167 | | 17% | | $1,147,409 |
| As a percentage of revenue | 40% | | | | | | 42% | | | | | | 37% |
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Selling and marketing expense in 2016 decreased from 2015 due to decreases of $130.2 million from Publishing, $40.1 million from Applications and $11.3 million from Video, partially offset by an increase of $81.5 million from HomeAdvisor.
The Publishing decrease was due primarily to a reduction of $132.6 million in online marketing, resulting from a decline in revenue, partially offset by $3.1 million in restructuring charges in the current year period related to severance costs in connection with a reduction in workforce.
The Applications decrease was due primarily to a decline of $37.5 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 $8.9 million in online marketing driven primarily by Vimeo.
The HomeAdvisor increase was due primarily to higher online and offline marketing of $51.2 million and an increase of $27.2$3.6 million in compensation due primarily to an increase in the sales force at the domestic business.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
Selling and marketing expense in 2015 increased from 2014 due to increases of $62.7 million from HomeAdvisor, $56.6 million from Publishing, $41.0 million from Applications, $24.5 million from Match Group and $17.0 million from Video.
The HomeAdvisor increase was due primarily to increases of $41.5 million in offline and online marketing and $19.1 million in compensation due, in part, to an increase in the sales force at the domestic business.
The Publishing increase was due primarily to an increase of $54.8 million in online marketing across Premium Brands, including About.com, partially offset by declines at Ask.com.
The Applications increase was due primarily to an increase of $38.1 million in online marketing, which was primarily related to a significant increase in new downloadable desktop applications at Consumer.
The Match Group increase was due primarily to the full year contribution from the 2014 acquisitions of LoveScout24 and The Princeton Review, an increase in stock-based compensation and from the 2015 acquisition of Eureka.
The Video increase was due primarily to an increase of $13.3 million in online marketing driven primarily by Vimeo.
General and administrative expense |
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| General and administrative expense | $547,160 | | $21,531 | | 4% | | $525,629 | | $82,019 | | 18% | | $443,610 |
| As a percentage of revenue | 17% | | | | | | 16% | | | | | | 14% |
For the year ended December 31, 2016 compared to the year ended December 31, 2015
General and administrative expense in 2016 increased from 2015 due to increases of $21.8 million from HomeAdvisor, $10.5 million from Applications, $4.7 million from Video and $3.3 million from Match Group, partially offset by decreases of $14.1 million from Publishing and $3.3 million from Corporate.
The HomeAdvisor increase was due primarily to higher compensation due, in part, to increased headcount at the domestic business, an increase in bad debt expense due to higher domestic revenue and $2.1 million in transaction-related costs in the current year period.
The Applications increase was due primarily to a change of $13.8 million in acquisition-related contingent consideration fair value adjustments, which was due to expense of $12.0 million in the current year period versus income of $1.8 million in the prior year period, partially offset by a decrease in compensation due, in part, to a decrease in headcount related to a reductionreductions in workforce that took place in the first half of 2016.
Depreciation
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Depreciation | $75,360 | | $1,095 | | 1% | | $74,265 | | $2,589 | | 4% | | $71,676 |
| As a percentage of revenue | 2% | | | | | | 2% | | | | | | 2% |
For the year ended December 31, 2018 compared to the year ended December 31, 2017
Depreciation in 2018 increased from 2017 due primarily to continued corporate growth at ANGI, partially offset by certain fixed assets becoming fully depreciated and the sale of The Video increase wasPrinceton Review.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Depreciation in 2017 increased from 2016 due primarily to the inclusionincreased depreciation at ANGI and MTCH related to continued corporate growth, partially offset by the sales of The Princeton Review and ShoeBuy.
Operating income (loss)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Match Group | $ | 553,294 |
| | $ | 192,777 |
| | 53 | % | | $ | 360,517 |
| | $ | 44,968 |
| | 14 | % | | $ | 315,549 |
|
| ANGI Homeservices | 63,906 |
| | 213,082 |
| | NM |
| | (149,176 | ) | | (174,539 | ) | | NM |
| | 25,363 |
|
| Vimeo | (35,594 | ) | | (8,266 | ) | | (30 | )% | | (27,328 | ) | | (1,978 | ) | | (8 | )% | | (25,350 | ) |
| Dotdash | 18,778 |
| | 34,472 |
| | NM |
| | (15,694 | ) | | 233,011 |
| | 94 | % | | (248,705 | ) |
| Applications | 94,834 |
| | (35,342 | ) | | (27 | )% | | 130,176 |
| | 20,513 |
| | 19 | % | | 109,663 |
|
| Emerging & Other | 29,964 |
| | 12,552 |
| | 72 | % | | 17,412 |
| | 117,108 |
| | NM |
| | (99,696 | ) |
| Corporate | (160,043 | ) | | (32,602 | ) | | (26 | )% | | (127,441 | ) | | (17,992 | ) | | (16 | )% | | (109,449 | ) |
| Total | $ | 565,139 |
| | $ | 376,673 |
| | 200 | % | | $ | 188,466 |
| | $ | 221,091 |
| | NM |
| | $ | (32,625 | ) |
| | | | | | | | | | | | | | |
| As a percentage of revenue | 13% | | | | | | 6% | | | | | | (1)% |
________________________
NM = Not meaningful.
For the year ended December 31, 2018 compared to the year ended December 31, 2017
Operating income in the prior year of income of $2.6 million in acquisition-related contingent consideration fair value adjustments and higher compensation due, in part, to an increase in headcount at Vimeo.
The Match Group increase was2018 increased from 2017 due primarily to an increase in Adjusted EBITDA of $5.3$413.5 million described below, a decrease of $26.2 million in stock-based compensation an increase of $4.0 million in office rent due to growth in the businessexpense and a decrease in incomechange of $1.9$4.3 million in acquisition-related contingent consideration fair value adjustments, partially offset by decreases in consulting expenses and non-income tax related items at Non-dating. The increase in compensation is due to an increase in headcount from both recent acquisitions and existing business growth, partially offset by a decrease in stock-based compensation expense due primarily to the inclusion in 2015increases of a modification charge related to certain equity awards, partially offset by the issuance of new equity awards since the prior year.
The Publishing decrease was due primarily to the sale of ASKfm and a decrease in bad debt expense, partially offset by $2.3$66.3 million in restructuring charges in the current year period primarily related to severance costs in connection with a reduction in workforce.
The Corporate decrease was due primarily to a decrease in stock-based compensation expense resulting from the inclusion in 2015amortization of a modification chargeintangibles and a greater number of awards being forfeited in the current year compared to the prior year, partially offset by the issuance of new equity awards in 2016.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
General and administrative expense in 2015 increased from 2014 due to increases of $58.0 million from Match Group, $11.7 million from Corporate and $9.0 million from HomeAdvisor.
The Match Group increase was due primarily to the full year contribution from the acquisition of The Princeton Review, an increase of $19.2$1.1 million in stock-based compensation expense due to the modification of certain awards in 2015 and the issuance of equity awards since 2014, and an increase of $3.3 million in costs, including severance, in 2015 related to the consolidation and streamlining of technology systems and European operations at our Dating businesses, partially offset by a $3.9 million benefit in 2014 related to the expiration of the statute of limitations for a non-income tax matter.
depreciation. The Corporate increase was due primarily to an increase in stock-based compensation expense as a result of a higher number of forfeited awards in 2014 and the modification of certain awards in 2015.
The HomeAdvisor increase was due primarily to an increase in compensation as a result of increased headcount in the domestic business and an increase in bad debt expense due to higher domestic revenue.
Product development expense |
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Product development expense | $197,885 | | $12,119 | | 7% | | $185,766 | | $25,251 | | 16% | | $160,515 |
| As a percentage of revenue | 6% | | | | | | 6% | | | | | | 5% |
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Product development expense in 2016 increased from 2015 due to increases of $15.7 million from Match Group and $2.3 million from Publishing, partially offset by a decrease of $6.6 million from Applications.
The Match Group increase was primarily related to an increase of $7.6 million in stock-based compensation expense, increased headcount at Tinder, and the 2015 acquisitions of PlentyOfFish and Eureka. The increase in stock-based compensation expense was due primarily to a decrease of $51.4 million in modification and acceleration charges related to the Combination ($70.6 million in 2018 compared to $122.1 million in 2017) and the inclusion in 2017 of a modification charge related to a HomeAdvisor equity award, partially offset by the modification of certain awards in 2018, due in part, to the sale of businesses during the fourth quarter of 2018, and the issuance of new equity awards and a netsince 2017. The increase in amortization of intangibles reflects an increase in amortization expense associated with the modification of certain equity awards since the prior year period.
The Publishing increase was due primarily to $1.2$39.4 million in restructuring charges related to severance coststhe Combination, the inclusion in connection with a reduction in workforce.
The2018 of an indefinite-lived intangible asset impairment charge of $27.7 million at Applications decrease was due primarily to a decrease of $4.4 million in compensation due, in part, to a decrease in headcount related to a reduction in workforce that took place intrade name at the first half of 2016.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
Product development expense in 2015 increased from 2014 due to increases of $17.6 million from Match GroupDesktop business and $5.5 million from HomeAdvisor.
The Match Group increase was due primarily to increased compensation at existing businesses and from acquisitions at Dating, as well as $4.0 million in severance expense in 2015, primarily incurred in the first half of 2015, related to the consolidation and streamlining of technology systems and European operations at our Dating business.
The HomeAdvisor increase was primarily related to an increase in compensation in the domestic business due, in part, to increased headcount.
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Depreciation | $71,676 | | $9,471 | | 15% | | $62,205 | | $1,049 | | 2% | | $61,156 |
| As a percentage of revenue | 2% | | | | | | 2% | | | | | | 2% |
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Depreciation in 2016 increased from 2015 due primarily to acquisitions and capital expenditures, partially offset by certain fixed assets becoming fully depreciated.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
Depreciation in 2015 increased from 2014 due primarilyamortization expense of $4.0 million related to the acquisition of The Princeton Review and capital expenditures, partially offset by certain fixed assets becoming fully depreciated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Match Group | $ | 305,908 |
| | $ | 112,352 |
| | 58 | % | | $ | 193,556 |
| | $ | (35,011 | ) | | (15 | )% | | $ | 228,567 |
|
| HomeAdvisor | 35,343 |
| | 28,891 |
| | 448 | % | | 6,452 |
| | 5,391 |
| | 509 | % | | 1,061 |
|
| Video | (27,656 | ) | | 11,100 |
| | 29 | % | | (38,756 | ) | | 4,590 |
| | 11 | % | | (43,346 | ) |
| Applications | 109,663 |
| | (65,482 | ) | | (37 | )% | | 175,145 |
| | (3,815 | ) | | (2 | )% | | 178,960 |
|
| Publishing | (334,417 | ) | | (307,725 | ) | | (1,153 | )% | | (26,692 | ) | | (137,215 | ) | | NM |
| | 110,523 |
|
| Other | (2,037 | ) | | 7,149 |
| | 78 | % | | (9,186 | ) | | (17,294 | ) | | NM |
| | 8,108 |
|
| Corporate | (119,429 | ) | | 1,502 |
| | 1 | % | | (120,931 | ) | | (15,785 | ) | | (15 | )% | | (105,146 | ) |
| Total | $ | (32,625 | ) | | $ | (212,213 | ) | | NM |
| | $ | 179,588 |
| | $ | (199,139 | ) | | (53 | )% | | $ | 378,727 |
|
| | | | | | | | | | | | | | |
| As a percentage of revenue | (1)% | | | | | | 6% | | | | | | 12% |
________________________
NM = not meaningful
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Operating income in 2016 decreased to a loss from 2015 despite an increase of $15.4 million in Adjusted EBITDA described below, due primarily to increases of $261.3 million in goodwill impairment charges, $9.5 million in depreciation and a change of $18.0 million in acquisition-related contingent consideration fair value adjustments,Livestream, partially offset by a decrease of $60.5 millionDotdash definite-lived trade name that became fully amortized in amortization of intangibles.2017. The increase in goodwill impairment charges is due to the write-off of goodwill of $275.4 million at Publishing in the current year period compared to the write-off of goodwill of $14.1 million at ShoeBuy in the prior year period. The goodwillindefinite-lived intangible asset 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 was recorded in the second quarter of 2016. The change in acquisition-related contingent consideration fair value adjustments was primarily the result of expense in the current year period of $2.6 million versus income of $15.5 million in the prior year period. The decrease in amortization of intangiblesDesktop was due primarily to a reduction in impairment charges during the year, partially offset by $23.3 million in amortizationGoogle’s policy changes related to a change in classificationits Chrome browser which became effective on September 12, 2018 and have negatively impacted the distribution of a Publishing trade name from an indefinite-lived intangible assetour business to a definite-lived intangible asset, effective April 1, 2016. The Company recorded an impairment charge in 2016 of $11.6 million compared to an impairment charge in 2015 of $88.0 million all related to certain Publishing indefinite-lived trade names.
For a detailed description of the Publishing goodwill and indefinite-lived intangible asset impairments, see "Note 2—Summary of Significant Accounting Policies" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data."consumer desktop products.
At December 31, 2016,2018, there was $177.9$326.0 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 2.62.3 years.
For the year ended December 31, 20152017 compared to the year ended December 31, 20142016
Operating income in 2015 decreased2017 increased from 2014a loss in 2016 due primarily to the decreaseinclusion in 2016 of $58.3a goodwill impairment charge of $275.4 million at IAC Publishing (which in connection with the Company's realignment of its reportable segments in the fourth quarter of 2018 was allocated to the Dotdash and the Emerging & Other reportable segments based upon their relative fair values as of October 1, 2018), an increase of $74.1 million in Adjusted EBITDA described below, and increasesa decrease of $82.0$37.3 million in amortization of intangibles, $45.8partially offset by an increase of $159.8 million in stock-based compensation expense, and a $14.1 million goodwill impairment charge at ShoeBuy, partially offset by an increase in incomechange of $2.1$3.2 million in changes from acquisition-related contingent consideration fair value adjustments compared to 2014.and an increase of $2.6 million in depreciation expense. The increasegoodwill impairment charge at IAC Publishing in 2016 was driven by the impact from the Google contract, traffic trends and monetization challenges. The decrease in amortization of intangibles was due primarily to an $88.0lower expense in 2017 as a result of a Dotdash trade name and certain intangible assets from the PlentyOfFish acquisition becoming fully amortized and impairment charges in 2016 of $9.0 million impairment chargeand $2.6 million related to certain Dictionary.com and Dotdash indefinite-lived trade names, of certain Ask & Other direct marketing brands, including Ask.com. The impairment charge reflectedrespectively, partially offset by expense in 2017 related to the impact of Google ecosystem changes that have impacted our ability to market, the effect of the reduced revenue share on mobile under the terms of the services agreement with Google, and the shift in focus to higher margin businesses in Publishing's Premium Brands. The combined impact of these factors has reduced the forecasted revenue and profits for these brands and the impairment charge reflected the resultant reduction in fair value.Combination. The increase in stock-based compensation expense was due primarily to an increase of $140.3 million at ANGI due primarily to the modification and acceleration charges related to the Combination, as well as an increase in expense related to a subsidiary denominated equity award held by a non-employee, which award was settled during the third quarter of certain equity awards in 2015, a higher number of forfeited awards in 20142017, and the issuance of new equity awards since 2014. The goodwill impairment charge at ShoeBuy was due to increased investment and the seasonal effect of high inventory levels as of October 1, 2015, the date of our 2015 annual assessment.2016.
Adjusted EBITDA
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Match Group | $ | 403,955 |
| | $ | 125,288 |
| | 45 | % | | $ | 278,667 |
| | $ | 5,219 |
| | 2 | % | | $ | 273,448 |
| $ | 653,931 |
| | $ | 184,990 |
| | 39 | % | | $ | 468,941 |
| | $ | 65,561 |
| | 16 | % | | $ | 403,380 |
|
| HomeAdvisor | 48,546 |
| | 30,017 |
| | 162 | % | | 18,529 |
| | 828 |
| | 5 | % | | 17,701 |
| |
| Video | (21,247 | ) | | 17,137 |
| | 45 | % | | (38,384 | ) | | 1,532 |
| | 4 | % | | (39,916 | ) | |
| ANGI Homeservices | | 247,506 |
| | 209,648 |
| | 554 | % | | 37,858 |
| | (7,993 | ) | | (17 | )% | | 45,851 |
|
| Vimeo | | (28,045 | ) | | (4,438 | ) | | (19 | )% | | (23,607 | ) | | (3,326 | ) | | (16 | )% | | (20,281 | ) |
| Dotdash | | 21,384 |
| | 24,147 |
| | NM |
| | (2,763 | ) | | 14,083 |
| | 84 | % | | (16,846 | ) |
| Applications | 132,276 |
| | (51,982 | ) | | (28 | )% | | 184,258 |
| | (1,934 | ) | | (1 | )% | | 186,192 |
| 131,837 |
| | (4,920 | ) | | (4 | )% | | 136,757 |
| | 4,481 |
| | 3 | % | | 132,276 |
|
| Publishing | (7,571 | ) | | (95,359 | ) | | NM |
| | 87,788 |
| | (63,172 | ) | | (42 | )% | | 150,960 |
| |
| Other | 1,227 |
| | (9,394 | ) | | (88 | )% | | 10,621 |
| | (2,513 | ) | | (19 | )% | | 13,134 |
| |
| Emerging & Other | | 36,178 |
| | 10,316 |
| | 40 | % | | 25,862 |
| | 15,751 |
| | 156 | % | | 10,111 |
|
| Corporate | (55,967 | ) | | (278 | ) | | — | % | | (55,689 | ) | | 1,754 |
| | 3 | % | | (57,443 | ) | (74,017 | ) | | (6,262 | ) | | (9 | )% | | (67,755 | ) | | (14,483 | ) | | (27 | )% | | (53,272 | ) |
| Total | $ | 501,219 |
| | $ | 15,429 |
| | 3 | % | | $ | 485,790 |
| | $ | (58,286 | ) | | (11 | )% | | $ | 544,076 |
| $ | 988,774 |
| | $ | 413,481 |
| | 72 | % | | $ | 575,293 |
| | $ | 74,074 |
| | 15 | % | | $ | 501,219 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percentage of revenue | 16% | | | | | | 15% | | | | | | 17% | 23% | | | | | | 17% | | | | | | 16% |
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
Match GroupMTCH Adjusted EBITDA increased 45%39% to $653.9 million due primarily to higherthe increase of $399.2 million in revenue a decrease indue to growth at Tinder, and lower selling and marketing expense as a percentage of revenue asdue primarily to the product mix continues toongoing shift towards brands with lower marketing spend, partially offset by higher in-app purchase fees as revenues are increasingly sourced through mobile app stores and higher litigation costs.
ANGI Adjusted EBITDA increased 554% to $247.5 million due primarily to the increase of $395.9 million in revenue, a reduction in transaction and integration-related costs principally related to the Combination of $39.1 million and lower selling and marketing expense as a percentage of revenue, partially offset by higher compensation expense due, in part, to increased headcount following the Combination, and increases of $21.7 million in cost of revenue, $19.7 million in bad debt expense, $15.2 million in software license and maintenance cost and $9.4 million in facilities costs. Additionally, Adjusted EBITDA in 2018 benefited from a reduction in sales commissions expense of $4.9 million due to the adoption of ASU No. 2014-09.
Vimeo Adjusted EBITDA loss increased 19% to a loss of $28.0 million, despite higher revenue, driven by investments in marketing and product development expense to continue to grow the business and an increase in legal costs.
Dotdash Adjusted EBITDA improved to a profit of $21.4 million in 2018 from a loss of $2.8 million in 2017, due primarily to higher revenue and lower operating expenses as a percentage of revenue.
Applications Adjusted EBITDA decreased 4% to $131.8 million, despite higher revenue, due primarily to higher marketing expense at Mosaic Group and losses at Daily Burn.
Emerging & Other Adjusted EBITDA increased 40% to $36.2 million due primarily to higher revenue, a favorable legal settlement of $4.8 million in the third quarter of 2018 and profits from Non-datingat IAC Films, partially offset by increased investments in College Humor Media and BlueCrew, and reduced profits at Electus.
Corporate Adjusted EBITDA loss increased 9% to $74.0 million due primarily to higher compensation costs.
For the current year period,ended December 31, 2017 compared to the year ended December 31, 2016
MTCH Adjusted EBITDA increased 16% to $468.9 million due primarily to an increase of $212.6 million in revenue and lower selling and marketing expense as a percentage of revenue due to the ongoing product mix towards brands with lower marketing spend and a reduction in marketing spend at MTCH's Affinity brands, partially offset by an increase in cost of revenue, driven by a significantgeneral and administrative expense and product development expense. General and administrative expense and product development expense increased due, in part, to expense of $12.7 million associated with the employer portion of payroll taxes and professional fees resulting from the settlement of the Tinder equity plan.
ANGI Adjusted EBITDA decreased 17% to $37.9 million, despite an increase of $237.5 million in revenue, due primarily to an increase in in-app purchase fees. Additionally, there are $11.8selling and marketing expense, higher compensation expense due, in part, to increase headcount, the inclusion in 2017 of $44.1 million of lowerin costs in the current year period related to the consolidationCombination (including severance, retention, transaction and streamlining of technology systemsintegration related costs) and increases in bad debt expense due, in part, to higher Marketplace Revenue, outsourced customer service expense, software license and maintenance costs, and higher losses at the European operations at our Dating businesses ($4.9 million in 2016 compared to $16.8 million in 2015).
HomeAdvisordriven primarily by its expansion strategy. Adjusted EBITDA in 2017 was further impacted by write-offs of deferred revenue related to the Combination of $7.8 million.
Vimeo Adjusted EBITDA loss increased 162%16% to a loss of $23.6 million, despite higher revenue (including the impact of deferred revenue write-offs of $2.1 million related to acquisition of Livestream), reflecting our investments in marketing and product development to grow the business.
Dotdash Adjusted EBITDA loss improved 84% to a loss of $2.8 million due primarily to higher revenue partially offset by an increased investment in online and offline marketing and $2.1 million in transaction-related costs. Adjusted EBITDA was further impacted by higher compensation due primarily to increased headcount and an increase in bad debt expense due to higher domesticlower operating expenses as a percentage of revenue.
Video Adjusted EBITDA loss improved 45% due primarily to reduced losses at Vimeo and Daily Burn and increased profits at Electus.
Applications Adjusted EBITDA decreased 28%increased 3% to 136.8 million, despite a 4% decrease in revenue, due primarily to lower revenue, partially offset by decreases in cost of revenue and selling and marketing expense.operating costs. Adjusted EBITDA was further impacted byin 2016 includes $2.6 million in restructuring charges.costs.
Publishing
Emerging & Other Adjusted EBITDA declinedincreased 156% to a loss in the current year period$25.9 million, despite lower revenue, due primarily to lower revenue and $15.6the inclusion in 2016 of $14.5 million in restructuring charges at Ask Media Group related to vacating a data center and severance costs during 2016 in an effort to managereduce costs ($9.2 million in costlight of revenue, $3.1 million in selling and marketing expense, $2.3 million in general and administrative expense and $1.2 million in product development expense). Adjusted EBITDA was further impacted by decreases in selling and marketing expense, cost of revenue and general and administrative expense exclusive of the restructuring charges.
Other Adjusted EBITDA decreased 88% due to the sale of PriceRunner in the first quarter of 2016, partially offset by improved Adjusted EBITDA at ShoeBuy resulting from increased revenue.
Corporate Adjusted EBITDA loss was flat compared to 2015.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
Match Group Adjusted EBITDA increased 2% due primarily to an increasesignificant declines in revenue and reduced losses from The Princeton Review, partially offset by $16.8 million of costs in 2015 related to the consolidation and streamlining of technology systems and European operations at our Dating businesses, an increase in cost of revenue and $3.9 million benefit in 2014 related to the expiration of the statute of limitations for a non-income tax matter.
HomeAdvisor Adjusted EBITDA increased 5% due primarily to higher revenue, partially offset by an increased investment in offline and online marketing, higher compensation due, in part, to increased headcount, and increased bad debt expense due to higher domestic revenue.
Video Adjusted EBITDA loss decreased 4% due primarily toGoogle contract, increased profits at ElectusDictionary.com and reduced losses at Daily Burn andthe contribution from IAC Films, partially offset by increased investment in Vimeo.
Applications Adjusted EBITDA decreased 1% due to lower revenuelosses at College Humor Media and an increase in selling and marketing expense, partially offset by a decrease in cost of revenue. The increase in selling and marketing expense was primarily due to a significant increase in online marketing related to new downloadable desktop applicationsreduced profits at Consumer. The decrease in cost of revenue was due primarily to a decrease in traffic acquisition costs driven by a decline in revenue from Partnerships.
Publishing Adjusted EBITDA decreased 42% due primarily to lower revenue and an increase in selling and marketing expense, partially offset by a decrease in cost of revenue. The increase in selling and marketing expense was primarily related to an increase in online marketing across Premium Brands, including About.com, partially offset by a decline at Ask.com. The decrease in cost of revenue was due primarily to a decrease in traffic acquisition costs driven primarily by a decline in revenue at Ask.com.
Other Adjusted EBITDA decreased 19% due to lower revenue.Electus.
Corporate Adjusted EBITDA loss decreased 3%increased 27% to $67.8 million due primarily to lower compensation.higher compensation costs and professional fees.
Interest expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Interest expense | $109,110 | | $35,474 | | 48% | | $73,636 | | $17,322 | | 31% | | $56,314 |
|
| | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Interest expense | $109,327 | | $4,032 | | 4% | | $ | 105,295 |
| | $(3,815) | | (3)% | | 109,110 |
Interest expense in 20162018 increased from 20152017 due primarily to increases in the average outstanding long-term debt balance and interest rates on variable rate debt compared to the $800 million of borrowings under the Match Group Term Loan in November 2015, of which $400 million was refinanced on June 1, 2016 with the 2016 Match Group Senior Notes, and the 2% higher interest rate associated with the 2015 Match Group Senior Notes which were issued in exchange for a substantially like amount of 2012 Senior Notes, partially offset by the repurchases and redemptions of the 2013 and 2012 Senior Notes during theprior year.
Interest expense in 2015 increased2017 decreased from 20142016 due primarily to bothlower interest expense of $16.0 million related to the costs2016 prepayment and 2017 repricing of the higherMTCH Term Loan and $6.6 million related to the repayment of the outstanding balances of the 4.875% Senior Notes and 6.75% MTCH Senior Notes in the fourth quarter of 2017. Partially offsetting these decreases are increases of $10.9 million of interest rateexpense associated with the exchange6.375% MTCH Senior Notes, $5.2 million from the issuance of $445the Exchangeable Notes, $1.8 million related to the 5.00% MTCH Senior Notes and $1.7 million from the ANGI Term Loan.
Other income (expense), net
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Other income (expense), net | $305,746 | | $321,959 | | NM | | $(16,213) | | $(76,863) | | NM | | $60,650 |
Other income, net in 2018 includes: $124.2 million of Match Groupnet unrealized gains related to certain equity investments that were adjusted to fair value in accordance with ASU No. 2016-01, which was adopted on January 1, 2018; $120.6 million in gains related to the sales of Dictionary.com, Electus, Felix and CityGrid; $30.4 million of interest income; $27.9 million in realized gains related to the sale of certain investments; and $5.3 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound.
Other expense, net in 2017 includes: $16.8 million in net foreign currency exchange losses due primarily to the weakening of the dollar relative to the British Pound; $15.4 million expense related to the extinguishment of the 6.75% MTCH Senior Notes forand repricing of the MTCH Term Loan; $13.0 million mark-to-market charge principally pertaining to a substantially like amount of 2012 Senior Notes, as well as the $800 million Match Group Term Loan. In connection with the note exchange, $7.3subsidiary denominated equity award held by a non-employee; $12.2 million in costs were expensed during 2015. The note exchange and term loan borrowings closed on November 16, 2015. Interestother-than-temporary impairment charges related to certain investments; $1.2 million expense in 2015 was also impacted byrelated to the accelerated amortizationwrite-off of deferred financing costs associated with the redemptionrepayment of the Liberty Bonds on September 1, 2015.
Other income (expense), net |
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Other income (expense), net | $60,461 | | $23,540 | | 64% | | $36,921 | | $89,405 | | NM | | $(52,484) |
Other income, net in 2016 includes gains ofincludes: $37.5 million and $12.0 million in realized gains related to the salesales of ShoeBuy and PriceRunner, respectively,respectively; $34.4 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound and Euro, interest income ofEuro; $5.1 million and aof interest income; $3.6 million gain related to the sale of marketablecertain equity securities, partially offset by ainvestments; $12.1 million non-cash charge of $12.1 million related to the write-off of a proportionate share of original issue discount and deferred financing costs associated with prepaymentsthe repayment of $440 million of the Match GroupMTCH Term Loan, $10.0Loan; $10.7 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, a loss ofinvestments; $3.8 million loss related to the sale of ASKfm and aASKfm; $3.6 million loss on the 20134.75% and 20124.875% Senior Note redemptions and repurchases.repurchases; and $2.5 million mark-to-market charge principally pertaining to a subsidiary denominated equity award held by a non-employee.
Other
Income tax (provision) benefit
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Income tax (provision) benefit | $(3,811) | | NM | | NM | | $291,050 | | $226,116 | | 348% | | $64,934 |
| Effective income tax rate | 1% | | | | | | NM | | | | | | 80% |
In 2018, the Company recorded an income tax provision of $3.8 million, which represented an effective tax rate of 1%. The effective income tax rate was lower than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards and the finalized Transition Tax.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act subjected to U.S. taxation certain previously deferred earnings of foreign subsidiaries as of December 31, 2017 ("Transition Tax") and implemented a number of changes that took effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% and a new minimum tax on global intangible low-taxed income ("GILTI") earned by foreign subsidiaries. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional tax expense in the fourth quarter of 2017. In the third quarter of 2018, the Company finalized this calculation, which resulted in a $9.2 million reduction in the Transition Tax. The net reduction in 2015 includedthe Transition Tax was due primarily to the utilization of additional foreign tax credits and a gain of $34.3 million from a real estate transaction, $5.4 millionreduction in net foreign currency exchange gains and $4.3 million in interest income,state taxes, partially offset by $6.7 million in other-than-temporary impairment charges related to certain cost method investments.
Other expense, net in 2014 included $66.6 million in other-than-temporary impairment charges related to certain cost method investmentsadditional taxable earnings and a $4.2 million other-than-temporary impairment charge on oneprofits of our equity method investments following the sale of a majorityforeign subsidiaries based on recently issued Internal Revenue Service guidance. The adjustment of the investee's assets,Company’s provisional tax expense was recorded as a change in estimate in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which was also included in ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB 118"), whichwasadopted by the Company upon issuance in March 2018. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.
In 2017, the Company recorded an income tax benefit of $291.1 million, which was due primarily to the effect of adopting the provisions of ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, on January 1, 2017 and foreign income taxed at lower rates, partially offset by the effect of the Tax Act. Under ASU No. 2016-09, excess tax benefits generated by the exercise, purchase or settlement of stock-based awards of $361.8 million in 2017 are recognized as a $19.4 million gain relatedreduction to the sale of Urbanspoon, $4.4 million in interest income and $3.6 million in gains relatedtax provision rather than as an increase to the sale of several long-term investments.
Income tax benefit (provision)additional paid-in capital. |
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Income tax benefit (provision) | $64,934 | | NM | | NM | | $(29,516) | | NM | | NM | | $(35,372) |
| Effective income tax rate | 80% | | | | | | 21% | | | | | | 13% |
In 2016, the Company recorded an income tax benefit for continuing operations of $64.9 million, which representsrepresented an effective income tax rate of 80%. The effective income tax rate was higher than the statutory rate of 35% due primarily to foreign income taxed at lower rates and the non-taxable gain on the sale of ShoeBuy, partially offset by the non-deductible portion of the goodwill impairment charge at the Publishing segment.Dotdash and Emerging & Other segments.
In 2015, the Company recorded an income tax provision for continuing operations of $29.5 million, which represents an effective income tax rate of 21%. The effective income tax rate was lower than the statutory rate of 35% due primarily to the realization of certain deferred tax assets, foreign income taxed at lower rates, the non-taxable gain on contingent consideration fair value adjustments, and a reduction in tax reserves and related interest due to the expiration of statutes of limitations, partially offset by a non-deductible goodwill impairment charge and unbenefited losses of unconsolidated subsidiaries.
In 2014, the Company recorded an income tax provision for continuing operations of $35.4 million, which represents an effective income tax rate of 13%. The effective income tax rate was lower than the statutory rate of 35% due principally to a reduction in tax reserves and related interest of $88.2 million due to the expiration of statutes of limitations for federal income taxes for 2001 through 2009 and foreign income taxed at lower rates, partially offset by the largely unbenefited loss associated with the write-downs of certain of the Company's investments and non-deductible goodwill associated with the sale of Urbanspoon.
Earnings from discontinued operations, net of tax
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Earnings from discontinued operations, net of tax | $189 | | NM | | NM | | $17 | | NM | | NM | | $174,673 |
Earnings from discontinued operations, net of tax in 2014 was due to the release of tax reserves related to the expiration of the statutes of limitations for federal income taxes for the years 2001 through 2009.
Net (earnings) lossearnings attributable to noncontrolling interests
Noncontrolling interests represent the noncontrolling holders’ percentage share of earnings or losses from the subsidiaries in which the Company holds a majority, but less than 100 percent,100%, ownership interest and the results of which are included in our consolidated financial statements.
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | $ Change | | % Change | | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Net (earnings) loss attributable to noncontrolling interests | $(25,129) | | $(31,227) | | NM | | $6,098 | | $455 | | 8% | | $5,643 |
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Net earnings attributable to noncontrolling interests | $ | 130,786 |
| | $77,702 | | 146% | | $ | 53,084 |
| | $27,955 | | 111% | | $ | 25,129 |
|
Net earnings attributable to noncontrolling interests in 2018 primarily represents the publicly-held interest in MTCH's and ANGI's earnings as well as the net earnings attributable to the noncontrolling interests in a subsidiary that holds the unrealized gains related to certain equity investments that were adjusted during the second quarter of 2018 to fair value in accordance with ASU No. 2016-01, partially offset by net losses attributable to the noncontrolling interests in certain subsidiaries within the Emerging & Other and Vimeo segments.
Net earnings attributable to noncontrolling interests in 2017 primarily represents the publicly-held interest in MTCH's earnings, partially offset by the publicly-held interest in ANGI's losses.
Net earnings attributable to noncontrolling interests in 2016 primarily representsrepresented the proportionate share of the noncontrolling holders' ownership in Match Group.MTCH.
Net loss attributable to noncontrolling interests in 2015 primarily represents the proportionate share of the noncontrolling holders' ownership in certain subsidiaries within the Video, HomeAdvisor and Publishing segments and Match Group.
Net loss attributable to noncontrolling interests in 2014 primarily represents the proportionate share of the noncontrolling holders' ownership in certain subsidiaries within the Video segment.
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, and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced.nature. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC'sour consolidated statement of operations of certain expenses.
The following table reconciles net earnings (loss) attributable to IAC shareholders to operating income (loss) to consolidated Adjusted EBITDA: |
| | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Net earnings (loss) attributable to IAC shareholders | $ | 626,961 |
| | $ | 304,924 |
| | $ | (41,280 | ) |
| Add back: | | | | | |
| Net earnings attributable to noncontrolling interests | 130,786 |
| | 53,084 |
| | 25,129 |
|
| Income tax provision (benefit) | 3,811 |
| | (291,050 | ) | | (64,934 | ) |
| Other (income) expense, net | (305,746 | ) | | 16,213 |
| | (60,650 | ) |
| Interest expense | 109,327 |
| | 105,295 |
| | 109,110 |
|
| Operating income (loss) | 565,139 |
| | 188,466 |
| | (32,625 | ) |
| Stock-based compensation expense | 238,420 |
| | 264,618 |
| | 104,820 |
|
| Depreciation | 75,360 |
| | 74,265 |
| | 71,676 |
|
| Amortization of intangibles | 108,399 |
| | 42,143 |
| | 79,426 |
|
| Acquisition-related contingent consideration fair value adjustments | 1,456 |
| | 5,801 |
| | 2,555 |
|
| Goodwill impairment | — |
| | — |
| — |
| 275,367 |
|
| Adjusted EBITDA | $ | 988,774 |
| | $ | 575,293 |
| | $ | 501,219 |
|
Non-Cash Expenses That Are Excluded From IAC'sOur Non-GAAP Measure
Stock-based compensation expense consists principally of expense associated with the grants, including unvested grants assumed in acquisitions (including the Combination), of stock options, restricted stock units ("RSUs"), performance-based RSUs and market-based awards. 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-basedmethod. Performance-based RSUs and market-based awards are included only to the extent the applicable performance or market condition(s) hashave been met (assuming the end of the reporting period is the end of the contingency period). UponTo the exercise of certain stock options and vesting of RSUs, performance-based RSUs and market-based awards, theextent that stock-based awards are settled at the Company's discretion, on a net basis, with the Company remittingremits the required tax-withholding amountamounts 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, or, in the case of leasehold improvements, the lease term, if shorter.
Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses related primarily to acquisitions.acquisitions (including the Combination). At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as technology, service professional and contractor relationships, customer lists and user base, memberships, trade names content, technology, customer lists, advertiser and supplier relationships,content, 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 the ongoing cost of doing business.
Effects of Changes in Foreign Exchange Rates on Match Group Revenue
The impact of foreign exchange rates on Match Group, due to its global reach, may be an important factor in understanding period over period comparisons if movement in rates is significant. International revenues are favorably
impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S dollar strengthens relative to other foreign currencies. We believe the presentation of revenue excluding foreign exchange, in addition to reported revenue, helps improve the ability to understand Match Group's performance because it excludes the impact of foreign currency volatility that is not indicative of Match Group's core operating results.
Revenue, excluding foreign exchange impact compares results between periods as if exchange rates had remained constant period over period. Revenue, excluding foreign exchange impact is calculated by translating current period revenues using prior period exchange rates. Revenue growth, excluding foreign exchange impact (expressed as a percentage), is calculated by determining the increase in current period revenues over prior period revenues where current period revenues are translated using prior period exchange rates.
This non-GAAP measure should be considered in addition to results reported in accordance with GAAP, but should not be considered a substitute for or superior to GAAP.
The impact of changes in foreign exchange rates on Match Group revenue was not material to the consolidated statement of operations for the year ended December 31, 2016 compared to the year ended December 31, 2015.
The following table presents the impact of foreign exchange on Match Group consolidated revenue, Match Group Dating revenue and Match Group International Direct Revenue for the year ended December 31, 2015 compared to the year ended December 31, 2014:
|
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2015 | | $ Change | | % Change | | 2014 |
| | (Dollars in thousands) |
| Match Group consolidated revenue, as reported | $ | 1,020,431 |
| | $ | 132,163 |
| | 15 | % | | $ | 888,268 |
|
| Foreign exchange impact | 48,109 |
| | | | | | |
| Match Group consolidated revenue, excluding foreign exchange impact | $ | 1,068,540 |
| | $ | 180,272 |
| | 20 | % | | $ | 888,268 |
|
| | | | | | | | |
| Match Group Dating revenue, as reported | $ | 909,705 |
| | $ | 73,247 |
| | 9 | % | | $ | 836,458 |
|
| Foreign exchange effect | 48,109 |
| | | | | | |
| Match Group Dating revenue, excluding foreign exchange impact | $ | 957,814 |
| | $ | 121,356 |
| | 15 | % | | $ | 836,458 |
|
| | | | | | | | |
| Match Group International Direct Revenue, as reported | $ | 283,351 |
| | $ | 9,752 |
| | 4 | % | | $ | 273,599 |
|
| Foreign exchange effect | 47,080 |
| | | | | | |
| Match Group International Direct Revenue, excluding foreign exchange impact | $ | 330,431 |
| | $ | 56,832 |
| | 21 | % | | $ | 273,599 |
|
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
|
| | | | | | | | |
| | | December 31, 2016 | | December 31, 2015 |
| | | (In thousands) |
| Cash and cash equivalents: | | | | |
United States (a) | | $ | 815,588 |
| | $ | 1,109,331 |
|
All other countries (b) (c) | | 513,599 |
| | 372,116 |
|
| Total cash and cash equivalents | | 1,329,187 |
| | 1,481,447 |
|
Marketable securities (United States) (d) | | 89,342 |
| | 39,200 |
|
Total cash and cash equivalents and marketable securities (e) | | $ | 1,418,529 |
| | $ | 1,520,647 |
|
| | | | | |
| Match Group Debt: | | | | |
| 2015 Match Group Senior Notes | | $ | 445,172 |
| | $ | 445,172 |
|
| 2016 Match Group Senior Notes | | 400,000 |
| | — |
|
Match Group Term Loan due November 16, 2022 (f) (g) | | 350,000 |
| | 800,000 |
|
| Total Match Group long-term debt | | 1,195,172 |
| | 1,245,172 |
|
| Less: Current maturities of Match Group long-term debt | | — |
| | 40,000 |
|
| Less: Unamortized original issue discount and original issue premium, net | | 5,245 |
| | 11,691 |
|
| Less: Unamortized debt issuance costs | | 13,434 |
| | 16,610 |
|
| Total Match Group debt, net of current maturities | | 1,176,493 |
| | 1,176,871 |
|
| | | | | |
| IAC Debt: | | | | |
| 2013 Senior Notes | | 390,214 |
| | 500,000 |
|
| 2012 Senior Notes | | 38,109 |
| | 54,732 |
|
| Total IAC long-term debt | | 428,323 |
| | 554,732 |
|
Less: Current portion of IAC long-term debt
| | 20,000 |
| | — |
|
| Less: Unamortized debt issuance costs | | 2,332 |
| | 4,649 |
|
| Total IAC debt, net of current portion | | 405,991 |
| | 550,083 |
|
| | | | | |
| Total long-term debt, net of current portion | | $ | 1,582,484 |
| | $ | 1,726,954 |
|
|
| | | | | | | | |
| | | December 31, |
| | | 2018 | | 2017 |
| | | (In thousands) |
| Cash and cash equivalents: | | | | |
| United States | | $ | 1,971,282 |
| | $ | 1,178,616 |
|
All other countries(a) | | 160,350 |
| | 452,193 |
|
| Total cash and cash equivalents | | 2,131,632 |
| | 1,630,809 |
|
| Marketable securities (United States) | | 123,665 |
| | 4,995 |
|
Total cash and cash equivalents and marketable securities(b)(c) | | $ | 2,255,297 |
| | $ | 1,635,804 |
|
| | | | | |
| MTCH Debt: | | | | |
| MTCH Term Loan | | $ | 425,000 |
| | $ | 425,000 |
|
| MTCH Credit Facility | | 260,000 |
| | — |
|
| 6.375% MTCH Senior Notes | | 400,000 |
| | 400,000 |
|
| 5.00% MTCH Senior Notes | | 450,000 |
| | 450,000 |
|
| Total MTCH long-term debt | | 1,535,000 |
| | 1,275,000 |
|
| Less: unamortized original issue discount | | 7,352 |
| | 8,668 |
|
| Less: unamortized debt issuance costs | | 11,737 |
| | 13,636 |
|
| Total MTCH debt, net | | 1,515,911 |
| | 1,252,696 |
|
| | | | | |
| ANGI Debt: | | | | |
| ANGI Term Loan | | 261,250 |
| | 275,000 |
|
| Less: current portion of ANGI Term Loan | | 13,750 |
| | 13,750 |
|
| Less: unamortized debt issuance costs | | 2,529 |
| | 2,938 |
|
| Total ANGI debt, net | | 244,971 |
| | 258,312 |
|
| | | | | |
| IAC Debt: | | | | |
| Exchangeable Notes | | 517,500 |
| | 517,500 |
|
| 4.75% Senior Notes | | 34,489 |
| | 34,859 |
|
| Total IAC long-term debt | | 551,989 |
| | 552,359 |
|
| Less: unamortized original issue discount | | 54,025 |
| | 67,158 |
|
| Less: unamortized debt issuance costs | | 13,298 |
| | 16,740 |
|
| Total IAC debt, net | | 484,666 |
| | 468,461 |
|
| | | | | |
| Total long-term debt, net | | $ | 2,245,548 |
| | $ | 1,979,469 |
|
| |
(a) | Domestically, cash equivalents primarily consist of AAA rated government money market funds, commercial paper rated A1/P1 or better and treasury discount notes. |
| |
(b) | Internationally, cash equivalents primarily consist of AAA rated treasury money market funds with maturities of less than 91 days from the date of purchase, and time deposits with maturities of less than 91 days. |
| |
(c) | If needed for our U.S. operations, mostAt December 31, 2018, all of the Company’s international cash and cash equivalents held by the Company's foreign subsidiaries couldcan be repatriated however, under current law, would be subjectwithout significant tax consequences. During the year ended December 31, 2018, international cash totaling $396.2 million was repatriated 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. |
| |
(d)(b) | Marketable securities consist of commercial paper rated A1/P1, treasury discount notes, short-to-medium-term debt securities issued by investment grade corporate issuers and an equity security (which was sold in the second quarter of 2016). 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. |
| |
(e) | At December 31, 2016 and 2015, cashCash and cash equivalents at December 31, 2018 and December 31, 2017 includes Match Group'sMTCH's domestic and international cash and cash equivalents of $114.0$83.9 million and $139.6$103.1 million; and $34.4$203.5 million and $53.8$69.2 million, respectively. Marketable securities at December 31, 2015 include $11.6 million at Match Group. There are no marketable securities at December 31, 2016 at Match Group. Match GroupMTCH 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, wethe Company cannot freely access the cash of Match GroupMTCH and its subsidiaries. Match Group generated $234.1 million and $209.1 million of operating cash flows for the years ended December 31, 2016 and 2015, respectively. In addition, agreements governing Match Group’s indebtedness limit the payment of dividends or distributions, loans or advances to stockholders, including the Company, in the event a default has occurred or Match Group's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0. |
| |
(f) | Proceeds from the 2016 Match Group Senior Notes were used to prepay a portion of the Match Group Term Loan. A final payment of $350 million is due at maturity. |
| |
(g)(c) | The Match Group Term Loan matures on November 16, 2022; provided that, if anyCash and cash equivalents at December 31, 2018 and December 31, 2017 includes ANGI's domestic and international cash and cash equivalents of $328.8 million and $8.2 million; and $214.8 million and $6.7 million, respectively. Marketable securities at December 31, 2018 include $24.9 million at ANGI. ANGI held no marketable securities at December 31, 2017. ANGI is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the 2015 Match Group Senior Notes remain outstanding onCompany with funds. As a result, the date that is 91 days prior toCompany cannot freely access the maturity datecash 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.ANGI and its subsidiaries. |
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.
Promptly following the closing of the Match Exchange Offer on November 16, 2015, 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 guarantee 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 December 31, 2016, Match Group was in compliance with all applicable covenants and was below the 5.0 to 1.0 leverage ratio.
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. On March 31, 2016, the Company made a $10.0 million principal payment on the Term Loan. On June 1, 2016, the proceeds of the 2016 Match Group Senior Notes were used to prepay a portion of the Match Group Term Loan and, as a result, quarterly principal payments of $10 million under the Match Group Term Loan are no longer due. On December 8, 2016, Match Group made an additional $40 million principal payment on the Match Group Term Loan. In addition, the remaining outstanding balance of $350 million, which is due at maturity, was repriced; following the repricing, Match Group Term Loan bears interest, at Match Group's option, at a base rate or LIBOR, plus 2.25% or 3.25%, respectively, and in the case of LIBOR, a floor of 0.75%. The interest rate at December 31, 2016 is 4.20%. Interest payments are due at least semi-annually through the term of the loan. The Match Group Term Loan provides for additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, if any, is governed by the secured net leverage ratio set forth in the Match Group Credit Agreement.
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 consolidated net leverage ratio of not more than 5.0 to 1.0 and a minimum interest coverage ratio of not less than 2.5 to 1.0 (in each case as defined in the Match Group Credit Agreement).
There are additional covenants under the Match Group Credit Facility and the Match Group Term Loan that limit the ability of Match Group and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. While the Match Group Term Loan remains outstanding, these same covenants under the Match Group Credit Agreement are more restrictive than the covenants that are applicable to the Match Group Credit Facility. Obligations under the Match Group Credit Facility and Match Group Term Loan are unconditionally guaranteed by certain Match Group wholly-owned domestic subsidiaries, and are also secured by the stock of certain Match Group domestic and foreign subsidiaries. The Match Group Term Loan and outstanding borrowings, if any, under the Match Group Credit Facility rank equally with each other, and have priority over the 2016 and 2015 Match Group Senior Notes to the extent of the value of the assets securing the borrowings under the Match Group Credit Agreement.
IAC Senior Notes:
The 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 December 31, 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 assetsIAC, MTCH and ANGI Long-term Debt
Supplementary DataIAC 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 and is based on the leverage ratio most recently reported. Borrowings under the IAC Credit Facility bear interest, at the Company's option, at a base rate or LIBOR, in each case, plus an applicable margin, which is determined by reference to a pricing grid based on the Company's leverage ratio. The terms of the IAC Credit Facility require that the Company maintains a leverage ratio (as defined in the agreement) of not more than 3.25 to 1.0 and restrict our ability to incur additional indebtedness. Borrowings under the IAC Credit Facility are unconditionally guaranteed by the same domestic subsidiaries that guarantee the 2013 and 2012 Senior Notes and are also secured by the stock of certain of our domestic and foreign subsidiaries. The 2013 and 2012 Senior Notes rank equally with each other, and are subordinate to outstanding borrowings under the IAC Credit Facility to extent of the value of the assets securing such borrowings.
Cash Flow Information
In summary, the Company's cash flows attributable to continuing operations are as follows:
|
| | | | | | | | | | | |
| | December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Net cash provided by operating activities | $ | 292,377 |
| | $ | 349,405 |
| | $ | 424,048 |
|
| Net cash provided by (used in) investing activities | 12,862 |
| | (582,721 | ) | | (439,794 | ) |
| Net cash (used in) provided by financing activities | (451,065 | ) | | 734,808 |
| | (80,980 | ) |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 988,128 |
| | $ | 416,699 |
| | $ | 344,238 |
|
| Investing activities | (173,440 | ) | | 42,049 |
| | 12,862 |
|
| Financing activities | (312,798 | ) | | (196,869 | ) | | (492,140 | ) |
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, excess tax benefits, deferred income taxes, acquisition-related contingent consideration fair value adjustments, adjustments related to gains on the sale of businesses, investments and assets, impairments of long-term investments, andnon-cash items, the effect of changes in working capital. capital and acquisition-related contingent consideration payments (to the extent greater than the liability initially recognized at the time of acquisition). Non-cash adjustments include goodwill impairments, stock-based compensation expense, net gains from the sale of businesses and investments, unrealized gains and losses on equity securities, amortization of intangibles, depreciation, bad debt expense, and deferred income taxes.
2018
Adjustments to earnings consist primarily of $238.4 million of stock-based compensation expense, $108.4 million of amortization of intangibles, $75.4 million of depreciation, $48.4 million of bad debt expense, partially offset by $147.8 million of net gains from the sale of businesses and investments, $124.2 million of net unrealized gains on certain equity securities, and $34.7 million of deferred income taxes. The deferred income tax benefit primarily relates to amortization of intangibles, a decrease in the valuation allowance, and an increase in credit carryforwards, partially offset by the deferred income tax provision on the net unrealized gains on certain equity securities. The increase from changes in working capital primarily consists of an increase in accounts payable and other liabilities of $53.6 million, an increase in deferred revenue of $49.5 million, and an increase in income taxes payable and receivable of $27.0 million, partially offset by an increase in other assets of $44.6 million and an increase in accounts receivable of $34.8 million. The increase in accounts payable and other liabilities is primarily due to increases in (i) accrued employee compensation due, in part, to the timing of payments of cash bonuses, (ii) payables and accruals at Ask Media Group due to growth in paid traffic, primarily in international markets, (iii) accrued advertising at MTCH and (iv) payables at Vimeo due to timing of payments. The increase in deferred revenue is due primarily to growth in subscription sales at Vimeo, MTCH and Applications. The increase in income taxes payable and receivable is due to 2018 income tax accruals in excess of 2018 income tax payments. The increase in other assets is primarily due to increases in (i) capitalized mobile app store fees at MTCH and Applications, (ii) capitalized production costs of various production deals at College Humor Media, Electus, and IAC Films, and (iii) capitalized sales commissions at ANGI. The increase in accounts receivable is primarily due to revenue growth at ANGI, Ask Media Group, and Dotdash, partially offset by decreases at MTCH and Applications due to an accelerated cash receipt from a mobile app store provider.
Net cash used in investing activities includes cash used for acquisitions and investments of $117.5 million, which includes the TelTech, iTranslate, BlueCrew, and Handy acquisitions, purchases (net of maturities and sales) of marketable debt securities of $116.1 million, capital expenditures of $85.6 million, primarily related to investments in the development of capitalized software at ANGI and MTCH to support their products and services and computer hardware, partially offset by net proceeds from the sale of businesses and investments of $136.7 million, which includes the sales of Dictionary.com and Electus, and $10.4 million in net proceeds from the sale of Angie's List's campus located in Indianapolis.
Net cash used in financing activities includes $207.7 million and $29.8 million for withholding taxes paid on behalf of
MTCH and ANGI employees, respectively, for stock-based awards that were net settled, $133.5 million for the repurchase of 3.1 million shares, on a settlement date basis, of MTCH common stock at an average price of $43.72 per share, $105.1 million for dividends paid to MTCH's noncontrolling interest holders, $82.9 million for the repurchase of 0.5 million shares, on a settlement date basis, of IAC common stock at an average price of $152.23 per share, $19.0 million for withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled, $16.1 million for the purchase of noncontrolling
interests, and $13.8 million in principal payments on ANGI debt, partially offset by $260.0 million in borrowings under the MTCH Credit Facility and $41.7 million in proceeds from the exercise of IAC stock options.
2017
Adjustments to earnings consist primarily of $264.6 million of stock-based compensation expense, $74.3 million of
depreciation, $42.1 million of amortization of intangibles, $28.9 million of bad debt expense, and $61.6 million of other adjustments, which primarily consist of $275.4losses on bond redemptions and net foreign currency exchange losses, partially offset by $285.3 million of deferred income taxes and $32.7 million of net gains from the sale of businesses and investments. The deferred income tax benefit primarily relates to the net operating loss created primarily by excess tax benefits of $361.8 million related to stock-based awards and the modification charge for the conversion and acceleration of stock-based awards in connection with the Combination, partially offset by the provisional Transition Tax. The decrease from changes in working capital consists primarily of an increase in accounts receivable of $115.2 million and a decrease in accounts payable and other liabilities of $25.3 million, partially offset by an increase in deferred revenue of $39.2 million. The increase in accounts receivable is primarily due to (i) the timing of cash receipts and the increasing proportion of revenue sourced through mobile app stores at MTCH, which is settled more slowly than traditional credit cards; and (ii) revenue growth at ANGI. The decrease in accounts payable and other liabilities is due to: (i) a decrease at MTCH due to the cash settlement of former subsidiary denominated equity awards held by a non-employee, (ii) a contingent consideration payment related to a business acquisition, (iii) a decrease in accrued employee compensation mainly related to the timing of payments of cash bonuses, partially offset by (iv) an increase in accrued advertising at MTCH. The increase in deferred revenue is due mainly to growth in subscription sales at MTCH and Vimeo, as well as growth in subscription sales and time-based advertising to service professionals at ANGI, partially offset by decreases at Electus and Notional mainly due to the delivery of programming related to various production deals.
Net cash provided by investing activities includes net proceeds from the sale of businesses and investments of $185.8 million, which is primarily related to the sales of The Princeton Review and a MTCH cost method investment, and proceeds from maturities and sales (net of purchases) of marketable debt securities of $84.5 million, partially offset by acquisitions and purchases of investments of $155.7 million, which includes the Livestream, MyBuilder, Angie's List and HomeStars acquisitions, and capital expenditures of $75.5 million, primarily related to investments in development of capitalized software at MTCH and ANGI to support their products and services, computer hardware and the Company's purchase of a 50% ownership interest in an aircraft as a replacement for a then existing 50% interest in a previously owned aircraft, which was sold on February 13, 2018.
Net cash used in financing activities includes principal payments made on MTCH and IAC debt of $445.2 million and $393.5 million, respectively, the payment of $272.5 million for the purchase of certain fully vested stock-based awards, the payment of $254.2 million, $93.8 million and $10.1 million for withholding taxes paid on behalf of MTCH, IAC and ANGI employees, respectively, for stock-based awards that were net settled, $74.4 million for the Exchangeable Notes hedge, $56.4 million for the repurchase of 0.8 million shares, on a settlement date basis, of IAC common stock at an average price of $69.24 per share, $33.7 million of debt issuance costs primarily related to the Exchangeable Notes and the 5.00% MTCH Senior Notes, $27.3 million in acquisition-related contingent consideration payments (included in operating activities is $11.1 million for an acquisition-related contingent consideration payment made in excess of the amount initially recognized at the time of acquisition) and $15.4 million for the purchase of noncontrolling interests, partially offset by $525.0 million in proceeds from the issuance of MTCH debt, $517.5 million in proceeds from the issuance of the Exchangeable Notes, $275.0 million in proceeds from the ANGI Term Loan, $82.4 million, $59.4 million and $1.7 million in proceeds from the exercise of IAC, MTCH and ANGI stock options, respectively, and $23.7 million in proceeds from the issuance of warrants.
2016
Adjustments to earnings consist primarily of $198.3 million and $77.0 million of goodwill impairment at the Publishing segment, $119.2 million of deferred income taxes,Dotdash and the Emerging & Other segments, respectively, $104.8 million of stock-based compensation expense, $79.4 million of amortization of intangibles, $71.7 million of depreciation, $51.8and $17.7 million in excess tax benefits,of bad debt expense, partially offset by $119.2 million of deferred income taxes and $51.0 million of net gains onfrom the sale of businesses investments and assets, and $10.7 million of impairment of long-term investments. The deferred income tax benefit primarily relates to the PublishingDotdash and Emerging & Other goodwill impairment.impairments. The decrease from changes in working capital consistconsists primarily of a decrease in accounts payable and other current liabilities of $52.4 million, an increase in other assets of $12.9$12.8 million, partially offset by an increase in deferred revenue of $35.8 million and an increase in income taxes payable and receivable of $9.0 million. The decrease in accounts payable and other current liabilities is due to (i) a decrease in accrued advertising and revenue share expense at PublishingAsk Media Group, Dotdash and Applications mainly due to the effect of the new Google contract, which became effective April 1, 2016, (ii) a decrease in VAT payables related mainly to decreases in international revenue at Publishing, Ask Media Group, and (iii) decreases in payables at Match GroupMTCH due to the timing of payments. The
increase in other assets is primarily related to an increase in production costs at IAC Films. The increase in deferred revenue is mainly due to growth in prepaid revenuesubscription sales at Match Group, HomeAdvisorMTCH, ANGI and Vimeo. The increase in income taxes payable and receivable is primarily due to (i) receipt of 2015 capital loss refund in 2016 (ii) current yearand 2016 income tax accruals in excess of current year2016 income tax payments, partially offset by (iii) payment of 2015 tax liabilities in 2016.
Net cash provided by investing activities attributable to continuing operations in 2016 includes net proceeds from the sale of businesses, investments and assets of $172.2 million, which mainly consists of proceeds fromrelate to the salesales of PriceRunner and ShoeBuy, partially offset by capital expenditures of $78.0 million, primarily related to Match Group and HomeAdvisor investments in internal development of capitalized software at MTCH and ANGI to support their products and services, as well as leasehold improvements and
computer hardware, purchases (net of sales and maturities) of marketable debt securities of $61.6 million, and cash used in acquisitions and purchases of investments of $31.0 million.
Net cash used in financing activities attributable to continuing operationsincludes $450.0 million in 2016 includesprincipal payments on MTCH debt, $308.9 million for the repurchase of 6.2 million shares, on a settlement date basis, of IAC common stock at an average price of $49.74 per share, $126.4 million in principal payments on IAC debt and $126.4$29.8 million and $26.7 million for the redemptionpayment of withholding taxes paid on behalf of MTCH and repurchase of a portion of the 2012 and 2013 Senior Notes,IAC employees, respectively, for stock-based awards that were net settled, partially offset by excess tax benefits from stock-based awards of $51.8 million. Additionally, a payment of $450.0 million was made toward the Match Group Term Loan, of which $400.0 million was financed byin proceeds from the issuance of the 2016 Match Group Senior Notes.
2015
Adjustments to earnings from continuing operations primarily consist of $140.0 million of amortization of intangibles, $105.5 million of stock-based compensation, $62.2 million of depreciationMTCH debt and $14.1 million of goodwill impairment, partially offset by $59.8 million of deferred income taxes, $56.4 million of excess tax benefits from stock-based awards, $34.3 million of gain on a real estate transaction and $15.5 million in acquisition-related contingent consideration fair value adjustments. The deferred income tax benefit primarily relates to amortization of intangibles and stock-based compensation. The increase from changes in working capital consist primarily of an increase in deferred revenue of $66.9$39.4 million and an increase$25.8 million in income taxes payable of $24.2 million, partially offset by an increase in accounts receivable of $29.7 million and an increase in other assets of $21.2 million. The increase in deferred revenue was due mainly to growth in prepaid revenue at Match Group, Vimeo and HomeAdvisor, increases related to acquisitions, and increases at Electus, CollegeHumor and Notional mainly due to the timing of various production deals. The increase in income taxes payable was due to 2015 income tax accruals in excess of 2015 income tax payments. The increase in accounts receivable was primarily due to growth in Match Group's in-app purchases sold through their mobile products and revenue growth at HomeAdvisor. The increase in other assets was primarily due to Match Group, relating to an increase in prepaid expenses, primarily from growth and the signing of longer-term contracts, as well as an increase in VAT refund receivables in the Publishing segment.
Net cash used in investing activities attributable to continuing operations in 2015 includes the purchase of acquisitions and investments of $651.9 million, which includes PlentyOfFish, and capital expenditures of $62.0 million, primarily related to the internal development of software to support our products and services, and computer hardware, partially offset by purchases (net of sales and maturities) of marketable securities of $125.3 million, and net proceeds from the saleexercise of long-term investmentsMTCH and an asset of $9.4 million.
Net cash provided by financing activities attributable to continuing operations in 2015 includes $788.0 million in borrowings from the Match Group Term Loan, $428.8 million in net proceeds received from Match Group's initial public offering and excess tax benefits from stock-based awards of $56.4 million, partially offset by $200.0 million used for the repurchase of 3.0 million shares of commonIAC stock at an average price of $67.68 per share, $113.2 million related to the payment of cash dividends to IAC shareholders, $80.0 million for the early redemption of the Liberty Bonds, $38.4 million in proceeds related to the issuance of common stock, net of withholding taxes, $32.2 million for the purchase of noncontrolling interests, $23.4 million for the repurchase of stock-based awards and $19.1 million of debt issuance costs primarily associated with the Match Group Term Loan and revolving credit facility.
2014
Adjustments to earnings from continuing operations primarily consist of $76.9 million of deferred income taxes, $66.6 million of impairments related to long-term investments, $61.2 million of depreciation, $59.6 million of stock-based compensation expense and $57.9 million of amortization of intangibles, partially offset by $45.0 million of excess tax benefits from stock-based awards, a $21.9 million adjustment related to gains on sales of a business and long-term investments and $13.4 million in acquisition-related contingent consideration fair value adjustments. The deferred income tax provision primarily relates to a net reduction in deferred tax assets related to the expiration of statutes of limitations for federal income taxes for the years 2001 through 2009. The changes from working capital activities consist of a decrease in income taxes payable of $94.5 million and an increase in accounts receivable of $19.9 million, partially offset by an increase in deferred revenue of $30.1 million. The decrease in income taxes payable is primarily due to a net reduction in tax reserves related to the expiration of statutes of limitations for federal income taxes for the years 2001 through 2009, partially offset by 2014 income tax accruals in excess of 2014 income tax payments. The increase in accounts receivable is primarily due to revenue growth at HomeAdvisor. The increase in deferred revenue is due to increases related to acquisitions and growth in membership and subscription revenue at Match Group and Vimeo,options, respectively.
Net cash used in investing activities attributable to continuing operations in 2014 includes acquisitions and investments of $283.7 million, which include the ValueClick O&O website businesses, The Princeton Review, SlimWare and LoveScout24, purchases (net of sales and maturities) of marketable securities of $154.2 million, and capital expenditures of $57.2 million
primarily related to the internal development of software to support our products and services, partially offset by $58.4 million of proceeds from the sales of a business and long-term investments.
Net cash used in financing activities attributable to continuing operations in 2014 includes $97.3 million related to the payment of cash dividends to IAC shareholders, $33.2 million for the purchase of noncontrolling interests in Tinder and Meetic, and $8.1 million in contingent consideration payments related principally to the 2013 Twoo acquisition, partially offset by excess tax benefits from stock-based awards of $45.0 million.
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.operations and available borrowings under the IAC Credit Facility. IAC's consolidated cash and cash equivalents and marketable securities at December 31, 2018 were $2.3 billion, of which $186.9 million was held by MTCH and $361.9 million was held by ANGI. The Company generated $988.1 million of operating cash flows for the year ended December 31, 2018, of which $603.5 million was generated by MTCH and $223.7 million was generated by ANGI. Each of MTCH and ANGI 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 $300 million revolving credit facility that expires on Octoberresult, the Company cannot freely access the cash of MTCH and ANGI and their respective subsidiaries. In addition, agreements governing MTCH and ANGI indebtedness limit the payment of dividends or distributions and loans or advances to stockholders, including the Company, in the event a default has occurred or in the case of MTCH, its secured net leverage ratio (as defined in the MTCH Term Loan) exceeds 2.0 to 1.0 or its consolidated leverage ratio (as defined in the MTCH indentures) exceeds 5.0 to 1.0, and in the case of ANGI, its consolidated net leverage ratio (as defined in the ANGI Term Loan) exceeds 4.5 to 1.0. There were no such limitations at December 31, 2018.
On December 7, 2020. Match Group has a2018, the MTCH $500 million revolving credit facility thatwas amended and restated, and now expires on OctoberDecember 7, 2020.2023. At December 31, 2016,2018, the outstanding borrowings under the MTCH Credit Facility were $260.0 million which bear interest at LIBOR plus 1.50%, or approximately 4.00%. Borrowings under the MTCH Credit Facility were repaid with a portion of the net proceeds from the 5.625% MTCH Senior Notes issued on February 15, 2019. On November 5, 2018, ANGI entered into a five-year $250 million revolving credit facility. The annual commitment fee on undrawn funds is currently 25 basis points and is based on the consolidated net leverage ratio most recently reported. Borrowings under the ANGI Credit Facility bear interest, at ANGI's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on ANGI's consolidated net leverage ratio. At December 31, 2018, there were no outstanding borrowings under the ANGI Credit Facility. On November 5, 2018, the ANGI Term Loan was amended and restated, and is now due on November 5, 2023. On November 5, 2018, the IAC Credit Facility was amended and restated, reducing the facility size from $300 million to $250 million, and now expires on November 5, 2023. There were no outstanding borrowings under the IAC Credit Facility or the Match Group Credit Facility.
Atat December 31, 2016,2018.
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's 2019 capital expenditures are expected to be higher than 2018 by approximately 25% to 30%, driven, in part, by higher capital expenditures for ANGI related to the development of capitalized software to support its products and services, and leasehold improvements related to the expansion of office space at MTCH's Tinder business.
During the year ended December 31, 2018, IAC had 9.3repurchased 0.5 million shares, on a trade date basis, of its common stock at an average price of $152.23 per share, or $82.9 million in aggregate. IAC has 8.0 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 December 31, 2016 were $1.3 billion, of which $253.7 million was held by Match Group. The Company generated $292.4 million of operating cash flows for
During the year ended December 31, 2016,2018, MTCH repurchased 3.1 million shares, on a trade date basis, of which $234.1its common stock at an average price of $43.72 per share, or $133.5 million was generated by Match Group. Match Group is a separate and distinct legal entity within aggregate. MTCH has 2.9 million shares remaining in its own public shareholders and boardshare repurchase authorization.
On February 6, 2019, the Board of directors and has no obligationDirectors of ANGI authorized ANGI to provide the Company with funds. As a result, we cannot freely access the cashrepurchase up to 15 million shares of the Match Group and its subsidiaries. In addition, agreements governing Match Group's indebtedness limit the payment of dividends or distributions and loans or advances to stockholders, including the Company, in the event a default has occurred or Match Group's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0.common stock.
The Company anticipates that it will needhas granted stock settled stock appreciation rights denominated in the equity of certain non-publicly traded subsidiaries to make capitalemployees and other expenditures in connection with the development and expansionmanagement of its operations. The Company's 2017 capital expenditures are expected to be higher than 2016 by approximately 5% to 10%, driven, in part, by certain Corporate related expenditures and HomeAdvisor's sales center and corporate headquarters expansion.
Awards made under our subsidiary denominatedthose subsidiaries. These equity plansawards are settled on a net basis, with the award holder entitled to receive a payment in IAC shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment. Awards madeThe number of IAC common shares that would be required to settle these vested and unvested interests, other than for MTCH, ANGI and their subsidiaries, at current estimated fair values, at February 1, 2019, is 0.1 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon exercise, would have been $16.0 million at February 1, 2019, assuming a 50% withholding rate. The number of Match GroupIAC common shares ultimately needed to settle these awards may vary significantly as a result of both movements in the Company's stock price and the determination of fair value of the relevant subsidiary that is different than the Company's estimate. The Company's RSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of IAC common stock. These equity awards are settled on a net basis. The number of IAC common shares that would be required to settle these awards at February 1, 2019 is 0.2 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon vest, would have been $43.1 million at February 1, 2019, assuming a 50% withholding rate.
The Company has historically settled its stock options on a gross basis. Assuming all stock options outstanding on February 1, 2019 were net settled on that date, the Company would have remitted $428.9 million (of which $270.3 million is related to vested stock options and $158.6 million is related to unvested stock options) in cash for withholding taxes (assuming a 50% withholding rate).
The Company's publicly traded subsidiaries have also granted equity awards denominated in the shares of those subsidiaries, some of which may be settled in eitherusing IAC shares.
MTCH currently settles substantially all equity awards on a net basis. Assuming all MTCH equity awards outstanding on February 1, 2019 were net settled on that date, MTCH would have issued 10.2 million common shares or Match Group(of which 2.0 million is related to vested shares at our option. The tax withholding payment associated with these awardsand 8.1 million is made by the Companyrelated to unvested shares) and would have remitted $556.2 million (of which $110.7 million is related to vested shares and $445.4 million is related to unvested shares) in cash for withholding taxes (assuming a 50% withholding rate). If MTCH decided to issue a sufficient number of shares to cover the $556.2 million employee withholding tax obligation, 10.2 million additional shares would be issued by MTCH. Certain MTCH stock options ("Tandem Awards") can be settled in MTCH or IAC common stock at the Company's election. Assuming all vested and unvested Tandem Awards outstanding on February 1, 2019 were exercised on that date and settled using IAC stock, 0.4 million IAC common shares would have been issued in settlement and MTCH would have issued 1.5 million shares, which is included in the amount above, to IAC as reimbursement.
In connection with the Combination, previously issued stock appreciation rights related to the common stock of HomeAdvisor (US) were converted into ANGI stock appreciation rights that are settleable, at ANGI's option, on a net basis with ANGI remitting withholding taxes on behalf of the employee or on a gross basis with ANGI issuing a sufficient number of Class A shares to cover the withholding taxes. In addition, at the timeIAC's option, these awards are exercised;can be settled in either Class A shares of ANGI or shares of IAC common stock. If settled in IAC common stock, ANGI reimburses IAC in either cash or through the caseissuance of Match Group awards,Class A shares to IAC. Assuming all of the tax withholding payment is made by Match Groupstock appreciation rights outstanding on February 1, 2019 were net settled on that date using IAC stock, 1.0 million IAC common shares would have been issued in settlement and IAC would have been issued 13.0 million shares of ANGI Class A stock and ANGI would have remitted $219.6 million in cash at the time these awards are exercised. In either case, the cash taxfor withholding payments will vary based on the ultimatetaxes (assuming a 50% withholding rate). If ANGI decided to issue a sufficient number of awards exercised,shares to cover the intrinsic value of the awards upon exercise and relevant$219.6 million employee withholding tax rates. We expectobligation, 13.0 million additional Class A shares would be issued by ANGI. ANGI's cash withholding obligation on all other ANGI net settled awards outstanding on February 1, 2019 is $38.5 million (assuming a reduction50% withholding rate), which is the equivalent of 2.3 million shares.
Prior to the Combination in future corporate income taxes equal to a substantial portion of any such withholding tax payments by virtue of the income tax deduction we will recognize based on the intrinsic value of the awards at exercise. However, there may be some delay in the timing of the realization of the cash benefit of the income tax deduction because it will be dependent upon the amount and timing of future taxable income and the timing of estimated income tax payments. As it relates to awards made to employees of Match Group subsidiaries, if2017, the Company elects to settle these awards in IAC shares, we will receive Match Group shares equal in value to the IAC shares issued. If the Company elects to settle these awards in Match Group shares, our ownership interest in Match Group will be diluted. The Match Group subsidiary denominated equity plan at Tinder hasissued a number of scheduled option exercise periods,IAC denominated PSUs to certain ANGI employees. Vesting of the PSUs is contingent upon ANGI's performance. Assuming all of the PSUs outstanding on February 1, 2019 were net settled on that date using IAC stock, 0.1 million IAC common shares would have been issued in settlement, IAC would have been issued 0.7 million shares of ANGI Class A stock and ANGI would have remitted $12.0 million in cash for withholding taxes (assuming a 50% withholding rate).
As of December 31, 2018, IAC's economic and voting interest in MTCH is 81.1% and 97.6%, respectively, and in ANGI is 83.9% and 98.1%, respectively. As described above, certain MTCH and ANGI equity awards can be settled either in IAC common shares or the next period is in May 2017; thecommon shares of these subsidiaries at IAC's election. The Company currently expects to settle a sufficient number of exercisesawards in IAC shares to maintain an economic interest in Match Groupboth MTCH and ANGI of at least 80% and to otherwise take such other steps as necessary to maintain an economic interest in each of MTCH and ANGI of at least 80%. See "Note 13—Stock-Based Compensation"
The Company does not expect to be a full U.S. federal cash income tax payer until 2022. The ultimate timing is dependent primarily on the performance of the Company and the amount and timing of tax deductions related to stock-based awards.
At December 31, 2018, all of the Company’s international cash can be repatriated without significant tax consequences. During the year ended December 31, 2018, international cash totaling $396.2 million was repatriated to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data" for additional discussion of subsidiary denominated equity plans.U.S.
The Company believes its existing cash, cash equivalents, marketable securities, available borrowings under the IAC Credit Facility and expected positive cash flows generated from operations will be sufficient to fund ourits normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes paid 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 ourits products and services. The Company’s indebtedness could limit ourits ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditure orexpenditures, debt service or other requirements; and (ii) use operating cash flow to make acquisitions or capital expenditures, or invest in other areas, such as developing properties and exploiting business opportunities, in
the event a default has occurred or in certain circumstances our leverage ratio (as defined in the indenture) exceeds 3.0 to 1.0.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 make additional acquisitions and investments or to provide for greater financial flexibility. Additional financing may not be available at all or on terms favorable to us.the Company or at all.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
| | | | Payments Due by Period | Payments Due by Period |
Contractual Obligations(a) | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total |
| | (In thousands) | (In thousands) |
Long-term debt(b) | $ | 111,108 |
| | $ | 539,396 |
| | $ | 154,759 |
| | $ | 1,349,491 |
| | $ | 2,154,754 |
| |
Long-term debt(b) (c) | | $ | 109,608 |
| | $ | 224,974 |
| | $ | 1,622,736 |
| | $ | 952,750 |
| | $ | 2,910,068 |
|
Operating leases(c)(d) | 31,834 |
| | 55,977 |
| | 31,762 |
| | 189,070 |
| | 308,643 |
| 38,770 |
| | 87,438 |
| | 64,633 |
| | 255,563 |
| | 446,404 |
|
Purchase obligations(d)(e) | 10,581 |
| | 10,000 |
| | — |
| | — |
| | 20,581 |
| 40,428 |
| | 23,897 |
| | — |
| | — |
| | 64,325 |
|
| Total contractual obligations | $ | 153,523 |
| | $ | 605,373 |
| | $ | 186,521 |
| | $ | 1,538,561 |
| | $ | 2,483,978 |
| $ | 188,806 |
| | $ | 336,309 |
| | $ | 1,687,369 |
| | $ | 1,208,313 |
| | $ | 3,420,797 |
|
| |
(b) | Represents contractual amounts due including interest on both fixed and variable rate instruments. Long-term debt at December 31, 20162018 consists of $1.3$1.4 billion which bearsbearing interest at fixed rates and $0.9 billion bearing interest at variable rates. The variable rate instruments consist of a $350$425.0 million Match GroupMTCH Term Loan, which bears interest at a variable rate.$261.3 million ANGI Term Loan and $260.0 million of outstanding borrowings under the MTCH Credit Facility. The Match GroupMTCH Term Loan bears interest at LIBOR plus 3.25%2.50%, or 4.20%5.09%, at December 31, 2016.2018. The ANGI Term Loan bears interest at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018. The outstanding borrowings under the MTCH Credit Facility bear interest at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018. The amount of interest ultimately paid on the Match Group Term LoanMTCH and ANGI term loans, and the MTCH Credit Facility may differ based on changes in interest rates. For additional information on long-term debt arrangements, see "Note 9—"Note 7—Long-term Debt"Debt" to the consolidated financial statements included in "Item"Item 8—Consolidated Financial Statements and Supplementary Data.Data." |
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(c) | Subsequent to December 31, 2018, the outstanding borrowings under the MTCH Credit Facility were repaid in full with a portion of the net proceeds from the 5.625% MTCH Senior Notes issued on February 15, 2019. The principal and interest related to the 5.625% MTCH Senior Notes are not included in the table above. |
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(d) | The Company leases land, office space, data center facilities and equipment used in connection with operations under various operating leases, many of which contain escalation clauses. The Company is also committed to pay a portion of the related operating expenses under a data centercertain lease agreement.agreements. These operating expenses are not included in the table above. For additional information on operating leases, see "Note 15—Commitments""Note 13—Commitments and Contingencies" to the consolidated financial statements included in "Item"Item 8—Consolidated Financial Statements and Supplementary Data.Data." |
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(d)(e) | The purchase obligations principally include a web hosting commitment.commitments. |
| | | | Amount of Commitment Expiration Per Period | Amount of Commitment Expiration Per Period |
Other Commercial Commitments(e)(f) | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total |
| | (In thousands) | (In thousands) |
| Letters of credit and surety bonds | $ | 768 |
| | $ | 63 |
| | $ | — |
| | $ | 1,437 |
| | $ | 2,268 |
| $ | 449 |
| | $ | — |
| | $ | — |
| | $ | 2,272 |
| | $ | 2,721 |
|
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(e)(f) | Commercial commitments are funding commitments that could potentially require registrant performancethe Company to perform in the event of demands by third parties or contingent events. |
Off-Balance Sheet Arrangements
Other than the items described above, the Company does not have any off-balance sheet arrangements as of December 31, 2016.2018.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following disclosure is provided to supplement the descriptions of IAC's accounting policies contained in "Note"Note 2—Summary of Significant Accounting Policies"Policies" to the consolidated financial statements included in "Item"Item 8—Consolidated Financial Statements and Supplementary Data"Data" in regard to significant areas of judgment. Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with U.S. generally accepted accounting principles. These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. What follows is a discussion of some of our more significant accounting policies and estimates. Business Combinations and Contingent Consideration Arrangements
Acquisitions are an important part of the Company's growth strategy. The Company invested $18.4$243.3 million $617.4(including the value of ANGI Homeservices Class A common stock issued in connection with the acquisition of Handy), $912.1 million (including the value of ANGI Class A common stock issued in connection with the Combination) and $259.4$36.1 million in acquisitions in the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively. The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based on detailed valuations that use information and assumptions provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the combination as of the acquisition date.
In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements areis initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company determines the fair value of the contingent consideration arrangements by using probability-weighted analyses to determine the amounts of the gross liability, and, if the arrangement is long-term in nature, applying a discount rate that appropriately captures the risk associated with the obligation to determine the net amount reflected in the consolidated financial statements. Determining the fair value of these arrangements is inherently difficult and subjective. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement and can have a material impact on our consolidated financial statements.measurement. The changes in the estimatedremeasured fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount, if applicable, are recognized in “General"General and administrative expense”expense" in the accompanying consolidated statement of operations. See "Note 8—Fair Value Measurements and Financial Instruments" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data" for a discussion of contingent consideration arrangements.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill is the Company's largest asset with a carrying value of $1.9$2.7 billion and $2.2$2.6 billion at December 31, 20162018 and 2015,2017, respectively. Indefinite-lived intangible assets, which consist of the Company's acquired trade names and trademarks, have a carrying value of $320.6$458.1 million and $380.1$459.1 million at December 31, 20162018 and 2015,2017, respectively.
Goodwill and indefinite-lived intangible assets are assessed annually for impairment as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value. In performing its annual assessment, the Company has the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
For the Company's annual goodwill test at October 1, 2016,2018, a qualitative assessment of the Match Group, HomeAdvisor Domestic, HomeAdvisor International,MTCH, ANGI, Vimeo, Daily BurnCollege Humor Media and ShoeBuyBlueCrew reporting units' goodwill was performed because the Company concluded it was more likely than not that the fair value of these reporting units was in excess of their respective carrying values. ThThe primary facte primary factorsors that the Company considered in its qualitative assessment for each of these reporting units isare described below:
Match Group'sMTCH's October 1, 20162018 market capitalization of $4.8$15.7 billion exceeded its carrying value by more than 970%approximately $15.1 billion and Match Group'sMTCH's strong operating performance.
ANGI's October 1, 2018 market capitalization of $10.7 billion exceeded its carrying value by approximately $9.6 billion and ANGI's strong operating performance.
The Company performed valuations of the HomeAdvisor Domestic, HomeAdvisor International, Vimeo, College Humor Media and Daily BurnBlueCrew reporting units during 2016.2018. These valuations were prepared primarily in connection with the issuance and/or settlement of equity grantsawards that are denominated in the sharesequity of these businesses. The valuations were prepared time proximate to, however, not as of, October 1, 2016.2018. The fair value of each of these businesses was significantly in excess of its October 1, 20162018 carrying value.
ShoeBuy's expected sales price was significantly in excess of its October 1, 2016 carrying value; which was confirmed by the sales price realized in its sale on December 30, 2016, which resulted in a pre-tax gain of $37.5 million.
When theThe Company elects to perform a qualitative assessment andtests goodwill for impairment when it concludes that it is not more likely than not that the fair value a reporting unit is greater than its carrying value goodwill mustthere may be tested foran impairment. For the Company's annual goodwill test at October 1, 2016,2018, the Company concluded that it was not more likely than not thatquantitatively tested the fair values ofDesktop and Mosaic Group reporting units (included in the Applications and Connected Ventures reporting units were greater than their respective carrying values and performed a quantitative test of these reporting units.segment). The Company's quantitative test indicated that the fair value of each of these reporting units is in excess of itstheir respective carrying value;values; therefore, the goodwill of these reporting units is not impaired. The PublishingCompany's Dotdash, Ask Media Group and The Daily Beast reporting unit hadunits have no goodwill as of October 1, 2016 because the Company recorded an impairment charge equal to the entire $275.4 million balance of the Publishing reporting unit goodwill during the second quarter of 2016, which is more fully described below, following a quantitative impairment test as of June 30, 2016. The quantitative impairment test is performed using the two-step process described below.goodwill.
The first stepaggregate goodwill balance for the reporting units for which the most recent estimate of anfair value is less than 110% of their carrying values is approximately $265.1 million.
The annual or interim quantitative test of the recovery of goodwill involves a comparison of the estimated fair value of each of the Company's reporting unitsunit that is being tested to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment equal to the excess is recorded.
The fair value of the Company's reporting units (except for MTCH and ANGI described above) is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock basedstock-based compensation plans, which can be a significant factor in the decision to apply the qualitative screen. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on theeach reporting units'unit's current results and forecasted future performance, as well as macroeconomic and industry specific factors. The discount rates used in the quantitative test for determining the fair value of the Company's reporting units ranged from 10%12.5% to 15% in 2018 and 12.5% to 17.5% in 2016 and 12% to 22% in 2015.2017. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer groupgroup of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors. While a primary driver in the determination of the fair values of the Company's reporting units is the estimate of future revenue and profitability, the determination of fair value is based, in part, upon the Company's assessment of macroeconomic factors, industry and competitive dynamics and the strategies of its businesses in response to these factors.
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 that excess. The Company has adopted the provisions of Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, effective January 1, 2017. Therefore, any goodwill impairment charge that might result in the future would be determined based solely upon the excess of the carrying value of the reporting unit over its fair value. The second step of the impairment analysis that is described above will no longer be performed.
At October 1, 2016, the fair value of each of the Company's reporting units with goodwill exceeded its carrying value by more than 20%.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair valuevalues of its indefinite-lived intangible assetassets are less than itstheir carrying value,values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1. The Company determines the fair value of indefinite-lived intangible assets using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. Assumptions used in the avoided royalty
DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged from 10.5% to 35% in 2018 and 11% to 16% in both 2016 and 2015,2017, and the royalty rates used ranged from 0.75% to 8.0% in 2018 and 2% to 7% in 20162017.
The aggregate indefinite-lived intangible asset balance for which the most recent estimate of fair value is less than 110% of their carrying values is approximately $131.3 million.
The 2018 annual assessment of goodwill did not identify any impairments. The 2018 annual assessment of indefinite-lived intangible assets identified impairment charges of $27.7 million and 1%$1.1 million related to 9%certain Desktop and College Humor Media indefinite-lived trade names, respectively. The indefinite-lived intangible asset impairment charge at Desktop was due to Google’s policy changes related to its Chrome browser which became effective on September 12, 2018 and have negatively impacted the distribution of our B2C downloadable desktop products. The impairment charge related to the B2C trade name was identified in 2015.our annual impairment assessment as of October 1, 2018 and reflects the projected reduction in profits and revenues and the resultant reduction in the assumed royalty rate from these policy changes. The impairment charges are included in "Amortization of intangibles" in the accompanying consolidated statement of operations.
The 2017 annual assessments did not identify any impairments.
While the 2016 annual assessment did not identify any material impairments, during the second quarter of 2016, the Company recorded an impairment chargescharge equal to the entire $275.4 million balanceat IAC Publishing. In connection with the Company's realignment of its reportable segments in the Publishing reporting unit goodwillfourth quarter of 2018, $198.3 million and $11.6$77.0 million was allocated to the Dotdash and the Emerging & Other reportable segments, respectively, based upon their relative fair values as of October 1, 2018. In addition, amortization of intangibles was further impacted by the inclusion of impairment charges in 2016 of $9.0 million and $2.6 million related to certain PublishingDictionary.com and Dotdash indefinite-lived intangible assets. The 2015 annual assessment identified impairment charges related to certain intangible assets of the Publishing reporting unit and the goodwill on the ShoeBuy reporting unit of $88.0 million and $14.1 million, respectively. These impairment charges are more fully described above in "Results of Operations for the Years Ended December 31, 2016, 2015 and 2014—Operating income (loss)" and "Note 2—Summary of Significant Accounting Policies" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data."trade names, respectively.
Recoverability and Estimated Useful Lives of Long-Lived Assets
We review the carrying value of all long-lived assets, comprising property and equipment including leasehold improvements, and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. In addition, the Company reviews the useful lives of its long-lived assets whenever events or changes in circumstances indicate that these lives may be changed. The carrying value of property and equipment and definite-lived intangible assets is $341.1$492.1 million and $363.5$519.8 million at December 31, 20162018 and 2015,2017, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. As ofAt December 31, 20162018 and 2015,2017, the balance of the Company's net deferred tax liabilities, net,asset is $226.3$41.2 million and $346.8$31.3 million, respectively.
We recognize liabilitiesThe Company evaluates and accounts for uncertain tax positions based onusing a two-step approach. Recognition (step one) occurs when the two-step process. The first step is to evaluate theCompany concludes that a tax position, for recognition by determining ifbased solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the weightamount of available evidence indicates itbenefit that is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is moregreater than 50% likely of beingto be realized upon ultimate settlement. settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. At December 31, 2018 and 2017, the Company has unrecognized tax benefits, including interest and penalties, of $52.3 million and $39.7 million, respectively. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustmentsadjustment and which may not accurately anticipate actual outcomes. At December 31, 2016 and 2015, the Company has unrecognized tax benefits of $41.0 million and $43.4 million, including interest, respectively. ChangesAlthough management currently believes changes to reserves from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided may be material. Differences betweenwill not have a material impact on the reserves for income tax contingencies and the amounts owed byliquidity, results of operations, or financial condition of the Company, these matters are recordedsubject to inherent uncertainties and management’s view of these matters may change in the period they become known.future.
The ultimate amount of deferred income tax assets realized and the amounts paid for deferred income tax liabilities and uncertain tax positions may vary from our estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the various tax authorities, as well as actual operating results of the Company that vary significantly from anticipated results.
No incomeAt December 31, 2018, all of the Company’s international cash can be repatriated without significant tax consequences. The Company has not provided for approximately $1.0 million of foreign deferred taxes have been provided onfor the $103.1 million of the foreign cash earnings that is indefinitely reinvested outside the U.S. The Company reassesses its intention to remit or permanently reinvest these cash earnings of certaineach reporting period; any required adjustment to the income tax provision would be reflected in the period that the Company changes this intention. During the year ended December 31, 2018, international cash totaling $396.2 million was repatriated to the U.S.
On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act imposes a new minimum tax on GILTI earned by foreign subsidiaries aggregating $680.2 million at December 31, 2016.beginning in 2018. The estimated amount ofFinancial Accounting Standards Board ("FASB") Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity may make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the unrecognized deferred income tax liability with respectexpense related to such earnings would be $169.3 million.GILTI in the year the tax is incurred. The Company elects to recognize the tax on GILTI as a period expense in the period the tax is incurred.
Stock-Based Compensation
The Company recorded stock-based compensation expense of $104.8$238.4 million, $105.4$264.6 million and $59.6$104.8 million for the years ended December 31, 2018, 2017 and 2016, 2015respectively. Included in stock-based compensation expense in 2018 and 2014, respectively.2017 is $70.6 million and $122.1 million, respectively, related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination. The Company estimated the fair value of stock options issued (including those modified in 2016, 2015connection with the Combination) in 2018, 2017 and 20142016 using a Black-Scholes option pricing model and, for those with a market condition, a lattice model. For stock options, including subsidiary denominated equity, the value of the stock option is measured at the grant date at fair value and expensed over the vesting term. The impact on stock-based compensation expense for the year ended December 31, 2016,2018, assuming a 1% increase in the risk-free interest rate, a 10% increase in the volatility factor and a one-year increase in the weighted average expected term of the outstanding options would be an increase of $3.5$3.8 million, $15.9$17.5 million and
$7.1 $6.1 million, respectively. The Company also issues RSUs and performance-based RSUs. For RSUs, issued, the value of the instrument is measured at the grant date as the fair value of the underlying IAC common stock and expensed as stock-based compensation expense over the vesting term. For performance-based RSUs, issued, the value of the instrument is measured at the grant date as the fair value of the underlying IAC common stock and expensed as stock-based compensation over the vesting term when the performance targets are considered probable of being achieved.
MarketableInvestments in Debt and Equity Securities and Long-term Investments
At December 31, 2016, marketable securities of $89.3 million consist of commercial paper rated A1/P1, treasury discount notes and short-to-medium-term debt securities issued by investment grade corporate issuers. Long-term investments at December 31, 2016 of $122.8 million include equity securities accounted for under the cost and equity methods.Debt Securities
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. Marketable debt securities are adjusted to fair value each quarter, and the unrealized gains and losses, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. The Company also invests in non-marketable debt securities as part of its investment strategy. We review our debt securities for impairment each reporting period. The Company recognizes an unrealized lossesloss on marketabledebt securities in net earnings when the losses are determined to be other-than-temporary. Additionally, the Company evaluates each cost and equity method investment for indicators of impairment on a quarterly basis, and recognizes an impairment loss if the decline in value is deemed to be other-than-temporary. Future events may result in reconsideration of the nature of losses as other-than-temporary and market and other factors may cause the value of the Company's investments to decline.
The Company employs a methodology that considers available evidence in evaluating potential other-than-temporary impairments of its investments. Investments are considered to be impaired when a decline in fair value below the amortized cost basis is determined to be other-than-temporary. SuchFactors we consider in making this determination include the duration, severity and reason for the decline in value and the potential recovery and our intent to sell the debt security. We also consider whether we will be required to sell the security before recovery of its amortized cost basis and whether the amortized cost basis cannot be recovered because of credit losses. If an impairment evaluations include, but are not limited to:is considered to be other-than-temporary, the length of time and extentdebt security will be written down to whichits fair value has been less than the cost basis, the current business environment, including competition; going concern considerations such as financial condition, the rate at which the investee utilizes cash and the investee's ability to obtain additional financing to achieveloss will be recognized within other income (expense), net. The carrying value of marketable debt securities at December 31, 2018 is $123.7 million and consist of treasury discount notes and commercial paper rated A1/P1 or better.
Equity Securities
The Company invests in equity securities as part of its business plan;investment strategy. Our equity securities, other than those of our consolidated subsidiaries and those accounted for under the needequity method, are accounted for at fair value or under the measurement alternative of ASU No. 2016-01, following its adoption on January 1, 2018, with changes recognized within other income (expense), net each reporting period. Under the measurement alternative, equity investments without readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer; value is generally determined based on a market approach as of the transaction date. An investment will be considered identical or similar if it has identical or similar rights to the investee's existingequity investments held by the Company. The Company reviews its equity securities for impairment each reporting period when there are qualitative factors or events that indicate possible impairment. Factors we consider in making this determination include negative changes in industry and market conditions, financial performance, business model dueprospects, and other relevant events and factors. Once the qualitative indicators are identified and the fair value of the security is below the carrying value, the Company writes down the security to changing businessits fair value and regulatory environmentsrecords the corresponding charge within other income (expense), net. The carrying value of the Company’s equity securities without readily determinable fair values at December 31, 2018, is $235.1 million and its abilityis included in long-term investments in the accompanying consolidated balance sheet. During 2018, the Company recognized gross unrealized gains of $129.0 million related to successfully implement necessary changes; and comparable valuations. During 2016, 2015 and 2014,the remeasurement of certain investments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In addition, during 2018, the Company recognized other-than-temporary impairments of $10.0$4.9 million $6.7related to equity securities without readily determinable fair values and $0.6 million related to an equity method investment. During 2017 and 2016, the Company recognized other-than-temporary impairments of $12.2 million and $66.6$10.7 million, respectively, related to cost and equity method investments. These charges are described above in "Results of Operations for the Years Ended December 31, 2016, 2015 and 2014—Other income (expense), net."
Recent Accounting Pronouncements
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's cash equivalents, marketable debt securities and long-term debt, including current maturities.
The Company invests its excess cash in certain cash equivalents and marketable debt securities, which may consist of money market funds, commercial paper, treasury discount notes, commercial paper and time deposits, and short-to-medium-term debt securities issued by investment grade corporate issuers. The Company employs a methodology that considers available evidence in evaluating potential other-than-temporary impairments of its investments. Investments are considered to be impaired when a decline in fair value below the amortized cost basis is determined to be other-than-temporary. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in current earnings and a new cost basis in the investment is established. During 2016, the Company did not record any material other-than-temporary impairment charges related to its cash equivalents and marketable debt securities.
Based on the Company's total investment in marketable debt securities at December 31, 2016,2018, a 100 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of these securities by $0.1 million. Such potential increase or decrease in fair value is based on certain simplifying assumptions, including a constant level and rate of debt securities 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. However, since almost all of the Company's cash and cash equivalents balance of $1.3$2.1 billion was invested in short-term fixed or variable rate money market instruments, the Company would also earn more (less) interest income due to such an increase (decrease) in interest rates.
At December 31, 2016,2018, the Company's outstanding debt was $1.6$2.3 billion, (including $20.0 million of 2013 Senior Notes classified as current, pending redemption) of which $1.3$1.4 billion bears interest at fixed rates and $350 million Match Group Term Loan, which bears interest at a variable rate.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 $53.9$58.2 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$425 million MTCH Term Loan, the $261.3 million outstanding balance on the ANGI Term Loan, and the $260 million of outstanding borrowings under the MTCH Credit Facility bear interest at variable rates. The MTCH Term Loan bears interest at LIBOR plus 3.25%2.50%. As of December 31, 2016,2018, the rate in effect was 4.20%5.09%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense and payments on the Match GroupMTCH Term Loan would increase or decrease by $3.5$4.3 million. The ANGI Term Loan bears interest at LIBOR plus 1.50%. As of December 31, 2018, the rate in effect was approximately 4.00%. If LIBOR were to increase or decrease by 100 basis points, the effective interest rate would decrease by 20 basis points to the LIBOR floor of 0.75% andthen the annual interest expense and payments inon the current yearANGI Term Loan would increase or decrease by $0.7$2.6 million. The MTCH Credit Facility bears interest at LIBOR plus 1.50%. As of December 31, 2018, the rate in effect was approximately 4.00%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense on the MTCH Credit Facility would increase or decrease by $2.6 million.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in various jurisdictions within the European Union, and, as a result, is exposed to foreign exchange risk for both the Euro and British Pound ("GBP").
For both the years ended December 31, 20162018, 2017 and 2015,2016, international revenue accounted for 34%, 30% and 26%, respectively, of our consolidated revenue. The Company's primaryCompany has exposure to foreign currency exchange risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. Dollar, primarily the Euro.dollar. As a result, as foreign currency exchange rates change,fluctuate, the translation of the statementsstatement of operations of the Company's international businesses into U.S. dollars affects year-over-year comparability of operating results. The average GBP and Euro versusexchange rates strengthened against the U.S. Dollar exchange rate was essentially flatdollar by approximately 4% and 5%, respectively, in 20162018 compared to 2015.2017.
ForeignThe Company is also exposed to foreign currency exchangetransaction gains and losses includedto the extent it or its subsidiaries conduct transactions in and/or have assets and/or liabilities that are denominated in a currency other than the Company's earningsentity's functional currency. The Company recorded foreign exchange gains of $5.3 million, losses of $16.8 million and gains of $34.4 million for the years ended December 31, 2018, 2017 and 2016, 2015respectively. The increase in GBP versus the U.S. dollar during 2018 and 2014 are gains2017 and (losses) of $34.4 million, $5.4 million and $(1.6) million, respectively. Historically foreign currency exchange gains and losses have not been material to the Company, however, the significant declinedecrease in the GBP due toversus the U.S. dollar during 2016, following the Brexit vote on June 23, 2016, generated significantthe majority of the Company's foreign currency exchange gains during 2016. This gain isand losses in these years. The foreign exchange gains and losses are primarily related to (1)a U.S. dollar denominated intercompany loan related to a 2016 acquisition in which the receivable is held by a foreign subsidiary with a GBP functional currency. The foreign exchange losses in 2017 and gains in 2016 were further impacted by U.S. dollar denominated cash, the majority of which is from the proceeds received in the PriceRunner sale in March 2016, held by a foreign subsidiary with a GBP functional currency and (2)currency. Subsequent to December 31, 2017, the Company moved this U.S. dollar denominated cash to a U.S. dollar denominated intercompany loan relatedfunctional currency entity.
Foreign currency exchange gains or losses historically have not been material to the Company. As a recent acquisition in which the receivable is held by a foreign subsidiary with a GBP functional currency.
If the GBP had declined 10% further versus the U.S. dollar during the year ended December 31, 2016, the gain would have been greater by $2.0 million and if the GBP had declined 10% less versus the U.S. dollar the gain would have been reduced by $2.6 million.
Historically,result, historically, the Company has not hedged foreign currency exposures. OurThe continued growth and expansion of our international expansionoperations increases our exposure to foreign exchange rate fluctuations. Significant foreign exchange rate fluctuations, and as a result such fluctuationsin the case of one currency or collectively with other currencies, could have a significant impact on our future results of operations.
Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The
To the Shareholders and the Board of Directors and Shareholders of IAC/InterActiveCorp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of IAC/InterActiveCorp and subsidiaries (the Company) as of December 31, 20162018 and 2015,2017, and the related consolidated statements of operations, comprehensive operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2019 expressed an unqualified opinion thereon.
Adoption of Accounting Standards Updates
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for the recognition, measurement, presentation and disclosure of certain equity securities due to the adoption of ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. Additionally, as discussed in Note 11 to the consolidated financial statements, the Company changed its method of accounting for stock compensation in 2017 due to the adoption of ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
Basis for Opinion
These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IAC/InterActiveCorp and subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), IAC/InterActiveCorp's internal control over financial reporting as of December 31, 2016, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2017 expressed an unqualified opinion thereon./s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 1996. New York, New York
February 28, 2017March 1, 2019
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET | | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands, except share data) | (In thousands, except par value amounts) |
| ASSETS | | | | | | |
| Cash and cash equivalents | $ | 1,329,187 |
| | $ | 1,481,447 |
| $ | 2,131,632 |
| | $ | 1,630,809 |
|
| Marketable securities | 89,342 |
| | 39,200 |
| 123,665 |
| | 4,995 |
|
| Accounts receivable, net of allowance of $16,405 and $16,528, respectively | 220,138 |
| | 250,077 |
| |
| Accounts receivable, net of allowance and reserves of $18,860 and $11,489, respectively | | 279,189 |
| | 304,027 |
|
| Other current assets | 204,068 |
| | 174,286 |
| 228,253 |
| | 185,374 |
|
| Total current assets | 1,842,735 |
| | 1,945,010 |
| 2,762,739 |
| | 2,125,205 |
|
| | | | |
|
| |
|
|
| Property and equipment, net | 306,248 |
| | 302,817 |
| |
| Property and equipment, net of accumulated depreciation and amortization | | 318,800 |
| | 315,170 |
|
| Goodwill | 1,924,052 |
| | 2,245,364 |
| 2,726,859 |
| | 2,559,066 |
|
| Intangible assets, net | 355,451 |
| | 440,828 |
| |
| Intangible assets, net of accumulated amortization | | 631,422 |
| | 663,737 |
|
| Long-term investments | 122,810 |
| | 137,386 |
| 235,055 |
| | 64,977 |
|
| Deferred income taxes | | 64,786 |
| | 66,321 |
|
| Other non-current assets | 94,577 |
| | 117,286 |
| 134,924 |
| | 73,334 |
|
| TOTAL ASSETS | $ | 4,645,873 |
| | $ | 5,188,691 |
| $ | 6,874,585 |
| | $ | 5,867,810 |
|
| |
| |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| LIABILITIES: | | | | | | |
| Current portion of long-term debt | $ | 20,000 |
| | $ | 40,000 |
| $ | 13,750 |
| | $ | 13,750 |
|
| Accounts payable, trade | 62,863 |
| | 86,883 |
| 74,907 |
| | 76,571 |
|
| Deferred revenue | 285,615 |
| | 258,412 |
| 360,015 |
| | 342,483 |
|
| Accrued expenses and other current liabilities | 344,910 |
| | 383,251 |
| 434,886 |
| | 366,924 |
|
| Total current liabilities | 713,388 |
| | 768,546 |
| 883,558 |
| | 799,728 |
|
| | | | |
|
| |
|
|
| Long-term debt, net of current portion | 1,582,484 |
| | 1,726,954 |
| |
| Long-term debt, net | | 2,245,548 |
| | 1,979,469 |
|
| Income taxes payable | 33,528 |
| | 33,692 |
| 37,584 |
| | 25,624 |
|
| Deferred income taxes | 228,798 |
| | 348,773 |
| 23,600 |
| | 35,070 |
|
| Other long-term liabilities | 44,178 |
| | 64,510 |
| 66,807 |
| | 38,229 |
|
| | | | |
|
| |
|
|
| Redeemable noncontrolling interests | 32,827 |
| | 30,391 |
| 65,687 |
| | 42,867 |
|
| | | | |
| |
|
| Commitments and contingencies |
| |
|
| |
|
| | | | |
| |
|
| SHAREHOLDERS' EQUITY: | | | |
| |
|
| Common stock $.001 par value; authorized 1,600,000,000 shares; issued 255,672,125 and 254,014,976 shares and outstanding 72,595,470 and 77,245,709 shares, respectively | 256 |
| | 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 |
| |
| Common stock $.001 par value; authorized 1,600,000 shares; issued 262,303 and 260,624 shares, respectively, and outstanding 77,963 and 76,829 shares, respectively | | 262 |
| | 261 |
|
| Class B convertible common stock $.001 par value; authorized 400,000 shares; issued 16,157 shares and outstanding 5,789 shares | | 16 |
| | 16 |
|
| Additional paid-in capital | 11,921,559 |
| | 11,486,315 |
| 12,022,387 |
| | 12,165,002 |
|
| Retained earnings | 290,114 |
| | 331,394 |
| 1,258,794 |
| | 595,038 |
|
| Accumulated other comprehensive loss | (166,123 | ) | | (152,103 | ) | (128,722 | ) | | (103,568 | ) |
| Treasury stock 193,444,655 and 187,137,267 shares, respectively | (10,176,600 | ) | | (9,861,350 | ) | |
| Treasury stock 194,708 and 194,163 shares, respectively | | (10,309,612 | ) | | (10,226,721 | ) |
| Total IAC shareholders' equity | 1,869,222 |
| | 1,804,526 |
| 2,843,125 |
| | 2,430,028 |
|
| Noncontrolling interests | 141,448 |
| | 411,299 |
| 708,676 |
| | 516,795 |
|
| Total shareholders' equity | 2,010,670 |
| | 2,215,825 |
| 3,551,801 |
| | 2,946,823 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 4,645,873 |
| | $ | 5,188,691 |
| $ | 6,874,585 |
| | $ | 5,867,810 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands, except per share data) | (In thousands, except per share data) |
| Revenue | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
| $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
| Operating costs and expenses: | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 755,730 |
| | 778,161 |
| | 860,204 |
| 911,146 |
| | 651,008 |
| | 755,730 |
|
| Selling and marketing expense | 1,245,263 |
| | 1,345,576 |
| | 1,147,409 |
| 1,519,440 |
| | 1,381,221 |
| | 1,247,097 |
|
| General and administrative expense | 547,160 |
| | 525,629 |
| | 443,610 |
| 774,079 |
| | 719,257 |
| | 530,446 |
|
| Product development expense | 197,885 |
| | 185,766 |
| | 160,515 |
| 309,329 |
| | 250,879 |
| | 212,765 |
|
| Depreciation | 71,676 |
| | 62,205 |
| | 61,156 |
| 75,360 |
| | 74,265 |
| | 71,676 |
|
| Amortization of intangibles | 79,426 |
| | 139,952 |
| | 57,926 |
| 108,399 |
| | 42,143 |
| | 79,426 |
|
| Goodwill impairment | 275,367 |
| | 14,056 |
| | — |
| — |
| | — |
| | 275,367 |
|
| Total operating costs and expenses | 3,172,507 |
| | 3,051,345 |
| | 2,730,820 |
| 3,697,753 |
| | 3,118,773 |
| | 3,172,507 |
|
| Operating (loss) income | (32,625 | ) | | 179,588 |
| | 378,727 |
| |
| Operating income (loss) | | 565,139 |
| | 188,466 |
| | (32,625 | ) |
| Interest expense | (109,110 | ) | | (73,636 | ) | | (56,314 | ) | (109,327 | ) | | (105,295 | ) | | (109,110 | ) |
| Other income (expense), net | 60,461 |
| | 36,921 |
| | (52,484 | ) | 305,746 |
| | (16,213 | ) | | 60,650 |
|
| (Loss) earnings from continuing operations before income taxes | (81,274 | ) | | 142,873 |
| | 269,929 |
| |
| Income tax benefit (provision) | 64,934 |
| | (29,516 | ) | | (35,372 | ) | |
| (Loss) earnings from continuing operations | (16,340 | ) | | 113,357 |
| | 234,557 |
| |
| Earnings from discontinued operations, net of tax | 189 |
| | 17 |
| | 174,673 |
| |
| Net (loss) earnings | (16,151 | ) | | 113,374 |
| | 409,230 |
| |
| Net (earnings) loss attributable to noncontrolling interests | (25,129 | ) | | 6,098 |
| | 5,643 |
| |
| Net (loss) earnings attributable to IAC shareholders | $ | (41,280 | ) | | $ | 119,472 |
| | $ | 414,873 |
| |
| Earnings (loss) before income taxes | | 761,558 |
| | 66,958 |
| | (81,085 | ) |
| Income tax (provision) benefit | | (3,811 | ) | | 291,050 |
| | 64,934 |
|
| Net earnings (loss) | | 757,747 |
| | 358,008 |
| | (16,151 | ) |
| Net earnings attributable to noncontrolling interests | | (130,786 | ) | | (53,084 | ) | | (25,129 | ) |
| Net earnings (loss) attributable to IAC shareholders | | $ | 626,961 |
| | $ | 304,924 |
| | $ | (41,280 | ) |
| | | | | | | | | | | |
| Per share information attributable to IAC shareholders: | | | | | | | | | | |
| Basic (loss) earnings per share from continuing operations | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 2.88 |
| |
| Diluted (loss) earnings per share from continuing operations | $ | (0.52 | ) | | $ | 1.33 |
| | $ | 2.71 |
| |
| Basic (loss) earnings per share | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 4.98 |
| |
| Diluted (loss) earnings per share | $ | (0.52 | ) | | $ | 1.33 |
| | $ | 4.68 |
| |
| | | | | | | |
| Dividends declared per share | $ | — |
| | $ | 1.36 |
| | $ | 1.16 |
| |
| Basic earnings (loss) per share | | $ | 7.52 |
| | $ | 3.81 |
| | $ | (0.52 | ) |
| Diluted earnings (loss) per share | | $ | 6.59 |
| | $ | 3.18 |
| | $ | (0.52 | ) |
| | | | | | | | | | | |
| Stock-based compensation expense by function: | | | | | | | | | | |
| Cost of revenue | $ | 2,305 |
| | $ | 1,210 |
| | $ | 949 |
| $ | 2,482 |
| | $ | 1,881 |
| | $ | 2,305 |
|
| Selling and marketing expense | 6,000 |
| | 10,186 |
| | 2,144 |
| 7,943 |
| | 31,318 |
| | 6,000 |
|
| General and administrative expense | 77,151 |
| | 82,798 |
| | 49,862 |
| 188,510 |
| | 192,957 |
| | 77,151 |
|
| Product development expense | 19,364 |
| | 11,256 |
| | 6,679 |
| 39,485 |
| | 38,462 |
| | 19,364 |
|
| Total stock-based compensation expense | $ | 104,820 |
| | $ | 105,450 |
| | $ | 59,634 |
| $ | 238,420 |
| | $ | 264,618 |
| | $ | 104,820 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Net (loss) earnings | $ | (16,151 | ) | | $ | 113,374 |
| | $ | 409,230 |
|
| Other comprehensive (loss) income, net of tax: | | | | | |
Change in foreign currency translation adjustment (a) | (43,126 | ) | | (68,844 | ) | | (66,874 | ) |
Change in unrealized gains and losses of available-for-sale securities (net of tax benefits of $884 and $1,852 in 2016 and 2014, respectively, and tax provision of $576 in 2015) (b) | 1,484 |
| | 3,140 |
| | (8,591 | ) |
| Total other comprehensive loss | (41,642 | ) | | (65,704 | ) | | (75,465 | ) |
| Comprehensive (loss) income | (57,793 | ) | | 47,670 |
| | 333,765 |
|
| Comprehensive (income) loss attributable to noncontrolling interests | (18,638 | ) | | 7,399 |
| | 6,454 |
|
| Comprehensive (loss) income attributable to IAC shareholders | $ | (76,431 | ) | | $ | 55,069 |
| | $ | 340,219 |
|
________________________
(a) The years ended December 31, 2016 and 2015 include amounts reclassified out of other comprehensive income into earnings. See "Note 11—Accumulated Other Comprehensive Loss" for additional information.
(b) The years ended December 31, 2016 and 2015 include unrealized gains reclassified out of other comprehensive income into earnings. See "Note 6—Marketable Securities" and "Note 11—Accumulated Other Comprehensive Loss" for additional information. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Net earnings (loss) | $ | 757,747 |
| | $ | 358,008 |
| | $ | (16,151 | ) |
| Other comprehensive (loss) income, net of tax: | | | | | |
| Change in foreign currency translation adjustment | (31,411 | ) | | 80,269 |
| | (43,126 | ) |
| Change in unrealized gains and losses on available-for-sale securities (net of tax benefit of $3,846 and $884 in 2017 and 2016, respectively) | 5 |
| | (4,026 | ) | | 1,484 |
|
| Total other comprehensive (loss) income | (31,406 | ) | | 76,243 |
| | (41,642 | ) |
| Comprehensive income (loss), net of tax | 726,341 |
| | 434,251 |
| | (57,793 | ) |
| Components of comprehensive (income) loss attributable to noncontrolling interests: | | | | | |
| Net earnings attributable to noncontrolling interests | (130,786 | ) | | (53,084 | ) | | (25,129 | ) |
| Change in foreign currency translation adjustment attributable to noncontrolling interests | 6,129 |
| | (13,797 | ) | | 6,033 |
|
| Change in unrealized gain and losses of available-for-sale securities attributable to noncontrolling interests | (1 | ) | | — |
| | 458 |
|
| Comprehensive income attributable to noncontrolling interests | (124,658 | ) | | (66,881 | ) | | (18,638 | ) |
| Comprehensive income (loss) attributable to IAC shareholders | $ | 601,683 |
| | $ | 367,370 |
| | $ | (76,431 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2016, 20152018, 2017 and 20142016
| | | | | | | IAC Shareholders' Equity | | | | | | | | IAC Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | | | | | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | | | | | |
| | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | (Accumulated Deficit) Retained Earnings | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | Retained Earnings | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | | | (In thousands) | | | | (In thousands) |
| Balance as of December 31, 2013 | $ | 42,861 |
| | | $ | 251 |
| | 250,982 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,562,567 |
| | $ | (32,735 | ) | | $ | (13,046 | ) | | $ | (9,830,317 | ) | | $ | 1,686,736 |
| | $ | 42,665 |
| | $ | 1,729,401 |
| |
| Balance as 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 | (5,643 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | 414,873 |
| | — |
| | — |
| | 414,873 |
| | — |
| | 414,873 |
| (3,849 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | (41,280 | ) | | — |
| | — |
| | (41,280 | ) | | 28,978 |
| | (12,302 | ) |
| Other comprehensive (loss) income, net of tax | (914 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (74,654 | ) | | — |
| | (74,654 | ) | | 103 |
| | (74,551 | ) | |
| Other comprehensive income (loss), net of tax | | 385 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (35,151 | ) | | — |
| | (35,151 | ) | | (6,876 | ) | | (42,027 | ) |
| Stock-based compensation expense | 558 |
| | | — |
| | — |
| | — |
| | — |
| | 59,362 |
| | — |
| | — |
| | — |
| | 59,362 |
| | (286 | ) | | 59,076 |
| 1,632 |
| | | — |
| | — |
| | — |
| | — |
| | 50,201 |
| | — |
| | — |
| | — |
| | 50,201 |
| | 44,523 |
| | 94,724 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 1 |
| | 1,188 |
| | — |
| | — |
| | (167,340 | ) | | — |
| | — |
| | 168,967 |
| | 1,628 |
| | — |
| | 1,628 |
| — |
| | | 2 |
| | 1,657 |
| | — |
| | — |
| | (772 | ) | | — |
| | — |
| | — |
| | (770 | ) | | — |
| | (770 | ) |
| Income tax benefit related to stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | 37,451 |
| | — |
| | — |
| | — |
| | 37,451 |
| | — |
| | 37,451 |
| — |
| | | — |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | 49,406 |
|
| Dividends | — |
| | | — |
| | — |
| | — |
| | — |
| | (39,557 | ) | | (57,020 | ) | | — |
| | — |
| | (96,577 | ) | | — |
| | (96,577 | ) | |
| Noncontrolling interests related to acquisitions | 17,886 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Purchase of redeemable noncontrolling interests | (41,743 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50,662 | ) | | (50,662 | ) | |
| Adjustment of redeemable noncontrolling interests and noncontrolling interests to fair value | 27,750 |
| | | — |
| | — |
| | — |
| | — |
| | (37,119 | ) | | — |
| | — |
| | — |
| | (37,119 | ) | | 9,369 |
| | (27,750 | ) | |
| Other | (328 | ) | | | — |
| | — |
| | — |
| | — |
| | 253 |
| | — |
| | — |
| | — |
| | 253 |
| | — |
| | 253 |
| |
| Balance as of December 31, 2014 | $ | 40,427 |
| | | $ | 252 |
| | 252,170 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,415,617 |
| | $ | 325,118 |
| | $ | (87,700 | ) | | $ | (9,661,350 | ) | | $ | 1,991,953 |
| | $ | 1,189 |
| | $ | 1,993,142 |
| |
| Net (loss) earnings | (7,737 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | 119,472 |
| | — |
| | — |
| | 119,472 |
| | 1,639 |
| | 121,111 |
| |
| Other comprehensive loss, net of tax | (1,301 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (64,403 | ) | | — |
| | (64,403 | ) | | — |
| | (64,403 | ) | |
| Stock-based compensation expense | 6,725 |
| | | — |
| | — |
| | — |
| | — |
| | 87,685 |
| | — |
| | — |
| | — |
| | 87,685 |
| | 4,808 |
| | 92,493 |
| |
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 2 |
| | 1,845 |
| | — |
| | — |
| | (37,733 | ) | | — |
| | — |
| | — |
| | (37,731 | ) | | — |
| | (37,731 | ) | |
| Income tax benefit related to stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | 44,577 |
| | — |
| | — |
| | — |
| | 44,577 |
| | — |
| | 44,577 |
| |
| Dividends | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | (113,196 | ) | | — |
| | — |
| | (113,196 | ) | | — |
| | (113,196 | ) | |
| Purchase of treasury stock | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (200,000 | ) | | (200,000 | ) | | — |
| | (200,000 | ) | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (315,250 | ) | | (315,250 | ) | | — |
| | (315,250 | ) |
| Purchase of redeemable noncontrolling interests | (32,207 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (2,529 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjustment of redeemable noncontrolling interests to fair value | 23,155 |
| | | — |
| | — |
| | — |
| | — |
| | (23,155 | ) | | — |
| | — |
| | — |
| | (23,155 | ) | | — |
| | (23,155 | ) | 7,921 |
| | | — |
| | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | (7,560 | ) |
| Noncontrolling interests related to Match Group IPO, net of fees and expenses | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 428,283 |
| | 428,283 |
| |
| Repurchase of stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,431 | ) | | (23,431 | ) | |
| Transfer from noncontrolling interests to redeemable noncontrolling interests | 1,189 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,189 | ) | | (1,189 | ) | |
| Purchase of noncontrolling interests | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (211 | ) | | (211 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,224 |
| | 10,224 |
|
| Reallocation of shareholders' equity balances related to the noncontrolling interests created in the Match Group IPO | | — |
| | | — |
| | — |
| | — |
| | — |
| | 342,507 |
| | — |
| | 21,131 |
| | — |
| | 363,638 |
| | (363,638 | ) | | — |
|
| Changes in noncontrolling interests of Match Group due to the issuance of its common stock | | — |
| | | — |
| | — |
| | — |
| | — |
| | (7,691 | ) | | — |
| | — |
| | — |
| | (7,691 | ) | | 7,691 |
| | — |
|
| Noncontrolling interests created in an acquisition | | — |
| | | — |
| | — |
| | — |
| | — |
| | 12,222 |
| | — |
| | — |
| | — |
| | 12,222 |
| | 9,811 |
| | 22,033 |
|
| Other | 140 |
| | | — |
| | — |
| | — |
| | — |
| | (676 | ) | | — |
| | — |
| | — |
| | (676 | ) | | — |
| | (676 | ) | (1,124 | ) | | | — |
| | — |
| | — |
| | — |
| | (3,069 | ) | | — |
| | — |
| | — |
| | (3,069 | ) | | (353 | ) | | (3,422 | ) |
| Balance as 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 |
| |
| Balance as of December 31, 2016 | | $ | 32,827 |
| | | $ | 256 |
| | 255,672 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,921,559 |
| | $ | 290,114 |
| | $ | (166,123 | ) | | $ | (10,176,600 | ) | | $ | 1,869,222 |
| | $ | 141,448 |
| | $ | 2,010,670 |
|
| Net earnings | | 3,620 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 304,924 |
| | — |
| | — |
| | 304,924 |
| | 49,464 |
| | 354,388 |
|
| Other comprehensive income, net of tax | | 1,291 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62,446 |
| | — |
| | 62,446 |
| | 12,506 |
| | 74,952 |
|
| Stock-based compensation expense | | 2,017 |
| | | — |
| | — |
| | — |
| | — |
| | 66,333 |
| | — |
| | — |
| | — |
| | 66,333 |
| | 180,055 |
| | 246,388 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | | — |
| | | 5 |
| | 4,952 |
| | — |
| | — |
| | (10,509 | ) | | — |
| | — |
| | — |
| | (10,504 | ) | | — |
| | (10,504 | ) |
| Purchase of treasury stock | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50,121 | ) | | (50,121 | ) | | — |
| | (50,121 | ) |
| Purchase of redeemable noncontrolling interests | | (14,641 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Purchase of noncontrolling interests | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (848 | ) | | (848 | ) |
| Adjustment of redeemable noncontrolling interests to fair value | | 6,341 |
| | | — |
| | — |
| | — |
| | — |
| | (6,341 | ) | | — |
| | — |
| | — |
| | (6,341 | ) | | — |
| | (6,341 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group | | — |
| | | — |
| | — |
| | — |
| | — |
| | (460,890 | ) | | — |
| | 116 |
| | — |
| | (460,774 | ) | | (3,435 | ) | | (464,209 | ) |
| Acquisition of Angie's List and creation of noncontrolling interests in ANGI Homeservices | | — |
| | | — |
| | — |
| | — |
| | — |
| | 645,475 |
| | — |
| | — |
| | — |
| | 645,475 |
| | 133,996 |
| | 779,471 |
|
| Noncontrolling interests created in acquisitions | | 17,758 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
Years Ended December 31, 2016, 20152018, 2017 and 20142016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | IAC Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | | | | |
| | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | | (Accumulated Deficit) Retained Earnings | | | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | | | (In thousands) |
| Net (loss) earnings | $ | (3,849 | ) | | | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | (41,280 | ) | | $ | — |
| | $ | — |
| | $ | (41,280 | ) | | $ | 28,978 |
| | $ | (12,302 | ) |
| Other comprehensive income (loss), net of tax | 385 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (35,151 | ) | | — |
| | (35,151 | ) | | (6,876 | ) | | (42,027 | ) |
| Stock-based compensation expense | 1,632 |
| | | — |
| | — |
| | — |
| | — |
| | 50,201 |
| | — |
| | — |
| | — |
| | 50,201 |
| | 44,523 |
| | 94,724 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 2 |
| | 1,657 |
| | — |
| | — |
| | (772 | ) | | — |
| | — |
| | — |
| | (770 | ) | | — |
| | (770 | ) |
| Income tax benefit related to stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | 49,406 |
|
| Purchase of treasury stock | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (315,250 | ) | | (315,250 | ) | | — |
| | (315,250 | ) |
| Purchase of redeemable noncontrolling interests | (2,529 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjustment of redeemable noncontrolling interests to fair value | 7,921 |
| | | — |
| | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | (7,560 | ) |
| Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (211 | ) | | (211 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,224 |
| | 10,224 |
|
| Reallocation of shareholders' equity balances related to the noncontrolling interests created in the Match Group IPO | — |
| | | — |
| | — |
| | — |
| | — |
| | 342,507 |
| | — |
| | 21,131 |
| | — |
| | 363,638 |
| | (363,638 | ) | | — |
|
| Changes in noncontrolling interests of Match Group due to the issuance of its common stock | — |
| | | — |
| | — |
| | — |
| | — |
| | (7,691 | ) | | — |
| | — |
| | — |
| | (7,691 | ) | | 7,691 |
| | — |
|
| Noncontrolling interests created in an acquisition | — |
| | | — |
| | — |
| | — |
| | — |
| | 12,222 |
| | — |
| | — |
| | — |
| | 12,222 |
| | 9,811 |
| | 22,033 |
|
| Other | (1,124 | ) | | | — |
| | — |
| | — |
| | — |
| | (3,069 | ) | | — |
| | — |
| | — |
| | (3,069 | ) | | (353 | ) | | (3,422 | ) |
| Balance as of December 31, 2016 | $ | 32,827 |
| | | $ | 256 |
| | 255,672 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,921,559 |
| | $ | 290,114 |
| | $ | (166,123 | ) | | $ | (10,176,600 | ) | | $ | 1,869,222 |
| | $ | 141,448 |
| | $ | 2,010,670 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | IAC Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | | | | | |
| | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | | Retained Earnings | | | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | | | (In thousands) |
| Issuance of ANGI Homeservices common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices | — |
| | | — |
| | — |
| | — |
| | — |
| | (11,216 | ) | | — |
| | (7 | ) | | — |
| | (11,223 | ) | | 2,730 |
| | (8,493 | ) |
| Purchase of exchangeable note hedge | — |
| | | — |
| | — |
| | — |
| | — |
| | (74,365 | ) | | — |
| | — |
| | — |
| | (74,365 | ) | | — |
| | (74,365 | ) |
| Equity component of exchangeable debt issuance, net of deferred financing costs and deferred tax asset | — |
| | | — |
| | — |
| | — |
| | — |
| | 71,158 |
| | — |
| | — |
| | — |
| | 71,158 |
| | — |
| | 71,158 |
|
| Issuance of warrants | — |
| | | — |
| | — |
| | — |
| | — |
| | 23,650 |
| | — |
| | — |
| | — |
| | 23,650 |
| | — |
| | 23,650 |
|
| Other | (6,346 | ) | | | — |
| | — |
| | — |
| | — |
| | 148 |
| | — |
| | — |
| | — |
| | 148 |
| | 879 |
| | 1,027 |
|
| Balance at December 31, 2017 | $ | 42,867 |
| | | $ | 261 |
| | 260,624 |
| | $ | 16 |
| | 16,157 |
| | $ | 12,165,002 |
| | $ | 595,038 |
| | $ | (103,568 | ) | | $ | (10,226,721 | ) | | $ | 2,430,028 |
| | $ | 516,795 |
| | $ | 2,946,823 |
|
| Cumulative effect of adoption of ASU No. 2014-09 | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 36,795 |
| | — |
| | — |
| | 36,795 |
| | 3,410 |
| | 40,205 |
|
| Net earnings | 33,897 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 626,961 |
| | — |
| | — |
| | 626,961 |
| | 96,889 |
| | 723,850 |
|
| Other comprehensive loss, net of tax | (702 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (25,278 | ) | | — |
| | (25,278 | ) | | (5,426 | ) | | (30,704 | ) |
| Stock-based compensation expense | 1,138 |
| | | — |
| | — |
| | — |
| | — |
| | 75,311 |
| | — |
| | — |
| | — |
| | 75,311 |
| | 161,971 |
| | 237,282 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 1 |
| | 1,679 |
| | — |
| | — |
| | 21,785 |
| | — |
| | — |
| | — |
| | 21,786 |
| | — |
| | 21,786 |
|
| Purchase of treasury stock | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (82,891 | ) | | (82,891 | ) | | — |
| | (82,891 | ) |
| Purchase of noncontrolling interests | (8,350 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,364 | ) | | (9,364 | ) |
| Adjustment of redeemable noncontrolling interests to fair value | 4,098 |
| | | — |
| | — |
| | — |
| | — |
| | (4,098 | ) | | — |
| | — |
| | — |
| | (4,098 | ) | | — |
| | (4,098 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group | — |
| | | — |
| | — |
| | — |
| | — |
| | (342,592 | ) | | — |
| | 135 |
| | — |
| | (342,457 | ) | | 1,057 |
| | (341,400 | ) |
| Issuance of ANGI Homeservices common stock pursuant to an acquisition, stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices | — |
| | | — |
| | — |
| | — |
| | — |
| | 106,215 |
| | — |
| | (11 | ) | | — |
| | 106,204 |
| | 34,502 |
| | 140,706 |
|
| Dividends paid to Match Group noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (105,126 | ) | | (105,126 | ) |
| Noncontrolling interests created in acquisitions | 2,261 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,307 |
| | 14,307 |
|
| Other | (9,522 | ) | | | — |
| | — |
| | — |
| | — |
| | 764 |
| | — |
| | — |
| | — |
| | 764 |
| | (339 | ) | | 425 |
|
| Balance at December 31, 2018 | $ | 65,687 |
| | | $ | 262 |
| | 262,303 |
| | $ | 16 |
| | 16,157 |
| | $ | 12,022,387 |
| | $ | 1,258,794 |
| | $ | (128,722 | ) | | $ | (10,309,612 | ) | | $ | 2,843,125 |
| | $ | 708,676 |
| | $ | 3,551,801 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Cash flows from operating activities attributable to continuing operations: | | | | | |
| Net (loss) earnings | $ | (16,151 | ) | | $ | 113,374 |
| | $ | 409,230 |
|
| Less: earnings from discontinued operations, net of tax | 189 |
| | 17 |
| | 174,673 |
|
| (Loss) earnings from continuing operations | (16,340 | ) | | 113,357 |
| | 234,557 |
|
| Adjustments to reconcile (loss) earnings from continuing operations to net cash provided by operating activities attributable to continuing operations: | | | | | |
| Stock-based compensation expense | 104,820 |
| | 105,450 |
| | 59,634 |
|
| Depreciation | 71,676 |
| | 62,205 |
| | 61,156 |
|
| Amortization of intangibles | 79,426 |
| | 139,952 |
| | 57,926 |
|
| Goodwill impairment | 275,367 |
| | 14,056 |
| | — |
|
| Impairment of long-term investments | 10,680 |
| | 6,689 |
| | 66,601 |
|
| Excess tax benefits from stock-based awards | (51,764 | ) | | (56,418 | ) | | (44,957 | ) |
| Deferred income taxes | (119,181 | ) | | (59,786 | ) | | 76,869 |
|
| Equity in losses (earnings) of unconsolidated affiliates | 549 |
| | (772 | ) | | 9,697 |
|
| Acquisition-related contingent consideration fair value adjustments | 2,555 |
| | (15,461 | ) | | (13,367 | ) |
| Gains on sale of businesses, investments and assets, net | (50,965 | ) | | (1,005 | ) | | (21,946 | ) |
| Gain on real estate transaction | — |
| | (34,341 | ) | | — |
|
| Other adjustments, net | 4,734 |
| | 26,496 |
| | 20,789 |
|
| Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
| Accounts receivable | 1,283 |
| | (29,680 | ) | | (19,918 | ) |
| Other assets | (12,905 | ) | | (21,174 | ) | | (3,606 | ) |
| Accounts payable and other current liabilities | (52,359 | ) | | 8,756 |
| | 4,963 |
|
| Income taxes payable | 8,998 |
| | 24,167 |
| | (94,492 | ) |
| Deferred revenue | 35,803 |
| | 66,914 |
| | 30,142 |
|
| Net cash provided by operating activities attributable to continuing operations | 292,377 |
| | 349,405 |
| | 424,048 |
|
| Cash flows from investing activities attributable to continuing operations: | | | | | |
| Acquisitions, net of cash acquired | (18,403 | ) | | (617,402 | ) | | (259,391 | ) |
| Capital expenditures | (78,039 | ) | | (62,049 | ) | | (57,233 | ) |
| Investments in time deposits | (87,500 | ) | | — |
| | — |
|
| Proceeds from maturities of time deposits | 87,500 |
| | — |
| | — |
|
| Proceeds from maturities and sales of marketable debt securities | 252,369 |
| | 218,462 |
| | 21,644 |
|
| Purchases of marketable debt securities | (313,943 | ) | | (93,134 | ) | | (175,826 | ) |
| Purchases of investments | (12,565 | ) | | (34,470 | ) | | (24,334 | ) |
| Net proceeds from the sale of businesses, investments and assets | 172,228 |
| | 9,413 |
| | 58,388 |
|
| Other, net | 11,215 |
| | (3,541 | ) | | (3,042 | ) |
| Net cash provided by (used in) investing activities attributable to continuing operations | 12,862 |
| | (582,721 | ) | | (439,794 | ) |
| Cash flows from financing activities attributable to continuing operations: | | | | | |
| Borrowings under Match Group Term Loan | — |
| | 788,000 |
| | — |
|
| Principal payments on Match Group Term Loan | (450,000 | ) | | — |
| | — |
|
| Proceeds from Match Group 2016 Senior Notes offering | 400,000 |
| | — |
| | — |
|
| Principal payments on IAC debt, including redemptions and repurchases of Senior Notes | (126,409 | ) | | (80,000 | ) | | — |
|
| Debt issuance costs | (7,811 | ) | | (19,050 | ) | | (383 | ) |
| Fees and expenses related to note exchange | — |
| | (6,954 | ) | | — |
|
| Proceeds from Match Group initial public offering, net of fees and expenses | — |
| | 428,789 |
| | — |
|
| Purchase of treasury stock | (308,948 | ) | | (200,000 | ) | | — |
|
| Dividends | — |
| | (113,196 | ) | | (97,338 | ) |
| Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes | (895 | ) | | (38,418 | ) | | 1,609 |
|
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes | 9,548 |
| | — |
| | — |
|
| Repurchase of stock-based awards | — |
| | (23,431 | ) | | — |
|
| Excess tax benefits from stock-based awards | 51,764 |
| | 56,418 |
| | 44,957 |
|
| Purchase of noncontrolling interests | (2,740 | ) | | (32,207 | ) | | (33,165 | ) |
| Acquisition-related contingent consideration payments | (2,180 | ) | | (5,750 | ) | | (8,109 | ) |
| Funds held in escrow for MyHammer tender offer | (10,548 | ) | | — |
| | — |
|
| Other, net | (2,846 | ) | | (19,393 | ) | | 11,449 |
|
| Net cash (used in) provided by financing activities attributable to continuing operations | (451,065 | ) | | 734,808 |
| | (80,980 | ) |
| Total cash (used in) provided by continuing operations | (145,826 | ) | | 501,492 |
| | (96,726 | ) |
| Total cash used in discontinued operations | — |
| | (152 | ) | | (145 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (6,434 | ) | | (10,298 | ) | | (13,168 | ) |
| Net (decrease) increase in cash and cash equivalents | (152,260 | ) | | 491,042 |
| | (110,039 | ) |
| Cash and cash equivalents at beginning of period | 1,481,447 |
| | 990,405 |
| | 1,100,444 |
|
| Cash and cash equivalents at end of period | $ | 1,329,187 |
| | $ | 1,481,447 |
| | $ | 990,405 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net earnings (loss) | $ | 757,747 |
| | $ | 358,008 |
| | $ | (16,151 | ) |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | |
| Stock-based compensation expense | 238,420 |
| | 264,618 |
| | 104,820 |
|
| Amortization of intangibles | 108,399 |
| | 42,143 |
| | 79,426 |
|
| Depreciation | 75,360 |
| | 74,265 |
| | 71,676 |
|
| Bad debt expense | 48,445 |
| | 28,930 |
| | 17,733 |
|
| Goodwill impairment | — |
| | — |
| | 275,367 |
|
| Deferred income taxes | (34,679 | ) | | (285,278 | ) | | (119,181 | ) |
| Unrealized gains on equity securities, net | (124,170 | ) | | — |
| | — |
|
| Gains from the sale of businesses and investments, net | (147,829 | ) | | (32,673 | ) | | (50,965 | ) |
| Other adjustments, net | 15,763 |
| | 61,647 |
| | 596 |
|
| Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
| Accounts receivable | (34,828 | ) | | (115,169 | ) | | 1,283 |
|
| Other assets | (44,557 | ) | | 5,688 |
| | (12,808 | ) |
| Accounts payable and other liabilities | 53,555 |
| | (25,289 | ) | | (52,359 | ) |
| Income taxes payable and receivable | 27,034 |
| | 655 |
| | 8,998 |
|
| Deferred revenue | 49,468 |
| | 39,154 |
| | 35,803 |
|
| Net cash provided by operating activities | 988,128 |
| | 416,699 |
| | 344,238 |
|
| Cash flows from investing activities: | | | | | |
| Acquisitions, net of cash acquired | (64,496 | ) | | (146,553 | ) | | (18,403 | ) |
| Capital expenditures | (85,634 | ) | | (75,523 | ) | | (78,039 | ) |
| Proceeds from maturities and sales of marketable debt securities | 333,600 |
| | 114,350 |
| | 252,369 |
|
| Purchases of marketable debt securities | (449,676 | ) | | (29,891 | ) | | (313,943 | ) |
| Investments in time deposits | — |
| | — |
| | (87,500 | ) |
| Proceeds from maturities of time deposits | — |
| | — |
| | 87,500 |
|
| Net proceeds from the sale of businesses and investments | 136,719 |
| | 185,778 |
| | 172,228 |
|
| Purchases of investments | (52,980 | ) | | (9,106 | ) | | (12,565 | ) |
| Other, net | 9,027 |
| | 2,994 |
| | 11,215 |
|
| Net cash (used in) provided by investing activities | (173,440 | ) | | 42,049 |
| | 12,862 |
|
| Cash flows from financing activities: | | | | | |
| Proceeds from issuance of IAC debt | — |
| | 517,500 |
| | — |
|
| Repurchases of IAC debt | (363 | ) | | (393,464 | ) | | (126,409 | ) |
| Proceeds from issuance of Match Group debt | 260,000 |
| | 525,000 |
| | 400,000 |
|
| Principal payments on Match Group debt | — |
| | (445,172 | ) | | (450,000 | ) |
| Borrowing under ANGI Homeservices Term Loan | — |
| | 275,000 |
| | — |
|
| Principal payments on ANGI Homeservices Term Loan | (13,750 | ) | | — |
| | — |
|
| Purchase of exchangeable note hedge | — |
| | (74,365 | ) | | — |
|
| Proceeds from issuance of warrants | — |
| | 23,650 |
| | — |
|
| Debt issuance costs | (5,449 | ) | | (33,744 | ) | | (7,811 | ) |
| Purchase of IAC treasury stock | (82,891 | ) | | (56,424 | ) | | (308,948 | ) |
| Purchase of Match Group treasury stock | (133,455 | ) | | — |
| | — |
|
Proceeds from the exercise of IAC stock options
| 41,700 |
| | 82,397 |
| | 25,821 |
|
| Proceeds from the exercise of Match Group and ANGI Homeservices stock options | 4,705 |
| | 61,095 |
| | 39,378 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (18,982 | ) | | (93,832 | ) | | (26,716 | ) |
| Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards | (237,564 | ) | | (264,323 | ) | | (29,830 | ) |
Purchase of Match Group stock-based awards
| — |
| | (272,459 | ) | | — |
|
| Dividends paid to Match Group noncontrolling interests | (105,126 | ) | | — |
| | — |
|
| Purchase of noncontrolling interests | (16,063 | ) | | (15,439 | ) | | (2,740 | ) |
| Acquisition-related contingent consideration payments | (185 | ) | | (27,289 | ) | | (2,180 | ) |
| Other, net | (5,375 | ) | | (5,000 | ) | | (2,705 | ) |
| Net cash used in financing activities | (312,798 | ) | | (196,869 | ) | | (492,140 | ) |
| Total cash provided (used) | 501,890 |
| | 261,879 |
| | (135,040 | ) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,887 | ) | | 11,604 |
| | (6,434 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 500,003 |
| | 273,483 |
| | (141,474 | ) |
| Cash, cash equivalents, and restricted cash at beginning of period | 1,633,682 |
| | 1,360,199 |
| | 1,501,673 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 2,133,685 |
| | $ | 1,633,682 |
| | $ | 1,360,199 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
IAC is a leading mediahas majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish and Internet company comprised of widely known consumer brands, such asOkCupid, and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dictionary.com,Dotdash and The Daily Beast, Investopedia, and Match Group'samong many other online dating portfolio, which includes Match, Tinder, PlentyOfFish and OkCupid.businesses.
All references toAs used herein, "IAC," the "Company," "we," "our" or "us" in this report areand similar terms refer to IAC/InterActiveCorp.InterActiveCorp and its subsidiaries (unless the context requires otherwise).
TheDuring the fourth quarter of 2018, the Company has sixrealigned its reportable segments as follows:
the Match Group, ANGI Homeservices and Applications segments remain unchanged;
Vimeo is now reported as its own segment (it was previously included in the Video segment, which has been eliminated);
Dotdash is now reported as its own segment (it was previously included in the Publishing segment, which has been eliminated); and
the Company's Other segment has been renamed, Emerging & Other, and the businesses previously included in the Video segment (other than Vimeo) and the Publishing segment (other than Dotdash) are described below.now included in the Emerging & Other segment.
Match Group
Our Match Group segment includesconsists of the datingbusinesses and non-dating businessesoperations of Match Group, Inc., which ("Match Group" or "MTCH").
MTCH completed its initial public offering ("IPO") on November 24, 2015. As ofAt December 31, 2016,2018, IAC’s ownership interesteconomic and voting interest in Match GroupMTCH were 82.5%81.1% and 97.9%97.6%, respectively.
MTCH is a leading provider of dating products available in over 40 languages to our users all over the world through applications and websites that we own and operate. MTCH operates a portfolio of dating brands, including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number of other brands, each designed to increase users likelihood of finding a meaningful connection. Through our portfolio of trusted brands, we provide tailored products to meet the varying preferences of our users.
ANGI Homeservices
Our Match GroupANGI Homeservices segment includes the North American (United States and Canada) and European businesses and operations of ANGI Homeservices Inc. ("ANGI"). On September 29, 2017, the Company's HomeAdvisor business and Angie's List Inc. ("Angie's List") combined under a new publicly traded company called ANGI Homeservices Inc. (the "Combination"). At December 31, 2018, IAC’s economic and voting interest in ANGI were 83.9% and 98.1%, respectively.
ANGI connects millions of homeowners to home service professionals through its portfolio of digital home service brands, including HomeAdvisor®, Angie’s List® and Handy Technologies, Inc. ("Handy"). Combined, these leading marketplaces have collected more than 15 million reviews over the course of 20 years, allowing homeowners to research, match and connect on-demand to the largest network of service professionals online, through our mobile apps or by voice assistants.
On October 19, 2018, ANGI acquired Handy, a leading platform in the United States for connecting people looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals. ANGI also owns and operates mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses, primarily sold today to HomeAdvisor service professionals, and CraftJack. Prior to its sale on December 31, 2018, ANGI also operated Felix, a pay-per-call advertising service business. In addition to its market-leading U.S. operations, ANGI owns leading home services online marketplaces in France (Travaux), Germany (MyHammer), Netherlands (Werkspot), United
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Kingdom (MyBuilder Limited or "MyBuilder," acquired a controlling interest on March 24, 2017), Canada (HomeStars Inc. or "HomeStars," acquired a controlling interest on February 8, 2017) and Italy (Instapro), as well as operations in Austria (MyHammer).
Vimeo
Vimeo operates a global video platform for creative professionals, marketers and enterprises to connect with their audiences, customers and employees. Vimeo provides cloud-based software products to stream, host, distribute and monetize videos online and across devices, as well as premium video tools on a subscription basis. Vimeo also sells live streaming accessories.
Dotdash
Dotdash is a portfolio of digital brands providing expert information and inspiration in select vertical content categories.
Applications
Our Applications segment consists of our North America datingDesktop business (which includes Match, Tinder, PlentyOfFish, OkCupid, our various affinity brands and other dating businesses operating within the United States and Canada)Mosaic Group (previously referred to as Mobile), our International dating business (which includes Meetic, Pairs, Twoo, the international operations of Tinder and PlentyOfFish andall other datingmobile business. Through these businesses, operating outside of the United States and Canada) and Match Group's non-dating business, The Princeton Review.
Through the brands within our dating business, we are a leading provider of membership-basedglobal, advertising-driven desktop and ad-supported dating products servicing North America, Western Europesubscription-based mobile applications.
Through our Desktop business, we own and many other regions around the world.operate a portfolio of desktop browser applications that provide users with access to a wide variety of online content, tools and services. We provide theseusers who download our desktop browser applications with new tab search services, as well as the option of default browser search services. We distribute our desktop browser applications to consumers free of charge on an opt-in basis directly through websitesdirect to consumer (primarily Chrome Web Store) and applicationspartnership distribution channels.
Through Mosaic Group, we are a leading provider of global subscription mobile applications. Mosaic Group consists of the following businesses that we own and operate.operate: Apalon, iTranslate, acquired in March 2018, TelTech, acquired in October 2018, and Daily Burn, transferred from the Emerging & Other segment effective April 1, 2018.
Match Group's non-dating business consists of The Princeton Review, which provides a variety of educational test preparation, academic tutoring and college counseling services.
HomeAdvisor
HomeAdvisorApalon is a leading global home services digital marketplacemobile development company with one of the largest and most popular application portfolios worldwide. iTranslate develops and distributes applications that helps connect consumers with home professionals in North America, as well as in France, the Netherlandsenable users to read, write, speak and Italy under various brands. On November 3, 2016, HomeAdvisor acquired a controlling interest in MyHammer Holding AG, the leading home services marketplace in Germany.
Video
Our Video segment consists primarily of Vimeo, Electus, CollegeHumor, Notional, IAC Films and Daily Burn.
Vimeo operates a global video sharing platform for creators and their audiences. Through Vimeo, we offer video creators simple, professional grade tools to share, manage, distribute and monetize content online, and provide viewers with a clutter-free environment to watch content across a variety of Internet-enabled devices, including mobile devices and connected television platforms.
Electus provides production and producer services for both unscripted and scripted television, feature film and digital content, primarily for initial sale and distributionlearn foreign languages anywhere in the United States. Our content is distributed on a wide range of platforms, including broadcast television, premiumworld. TelTech develops and basic cable television, subscription-baseddistributes unique and ad-supported video-on-demand services and through theatrical releases and other outlets. Electus also operates Electus Digital, which consists of the following websites and properties: CollegeHumor.com, Dorkly.com and WatchLOUD.com; YouTube channels WatchLOUD, Nuevon and Hungry; and Big Breakfast (a production company). Through Electus, we also operate Notional.
innovative mobile communications applications that help protect consumer privacy. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms including(including iOS, Android, Roku and other Internet-enabled television platforms.platforms).
ApplicationsEmerging & Other
Our Emerging & Other segment primarily includes:
Ask Media Group, a collection of websites providing general search services and information;
BlueCrew, an on-demand staffing platform that connects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and moving, data entry and customer service;
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors;
College Humor Media, a provider of digital content, including its recently launched subscription only property, Dropout.tv; and
IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States and internationally.
For periods prior to their sales:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our Applications segment includes Consumer, which includes our direct-to-consumer downloadable desktop applications, including Apalon, which houses our mobile applications operations, and SlimWare, which houses our downloadable desktop software and services operations; and Partnerships, which includes our business-to-business partnership operations.
Through our Consumer business, we develop, market and distribute a variety of applications, including desktop applications through which users can access search services and which are tailored to a number of specific online uses. Apalon is an award-winning mobile development company with one of the largest and most popular portfolios of mobile applications worldwide. SlimWare is a provider of community-powered software and services that clean, repair, update and optimize personal computers.
Through our Partnerships business, we work closely with partners in the software, media and other industries to design and develop customized browser-based search applications to be bundled and distributed with these partners’ products and services.
Publishing
The Publishing segment includes our Premium Brands business, which is composed of About.com, Dictionary.com, Investopedia and The Daily Beast; and our Ask & Other business, which primarily includes Ask.com, CityGrid and, for periods prior to its sale on June 30, 2016, ASKfm.
Premium Brands
Our Premium Brands business primarily consists of the following destination websites:
About.com, which provides detailed information and content written by independent, freelance subject matter experts;
Dictionary.com, which primarily provides online and mobile dictionary, thesaurus and reference services;
Investopedia, a resource for investment and personal finance education and information; and
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that curates and publishes existing and original online content from its own roster of contributors in the United States.
During 2016, About.com evolved from a general content website to a collection of vertical brands by transitioning content from the various network channels on its general content website to stand-alone vertical domains, each with its own unique branding and user experience. To date, content from four network channels (specifically, Health, Money, Tech, and Home) has been transitioned to four verticals (Verywell.com, TheBalance.com, Lifewire.com and TheSpruce.com, respectively).
Ask & Other
Our Ask & Other business primarily consists of:
Ask.com, which provides general search services, as well as question and answer services that provide direct answers to natural-language questions;
CityGrid, an advertising network that integrates local content and advertising for distribution to affiliated and third party publishers across web and mobile platforms; and
For periods prior to its sale on June 30, 2016, ASKfm, a questions and answers social network.
Other
Our Other segment consisted of ShoeBuy, an Internet retailer of footwear and related apparel and accessories, and PriceRunner, a shopping comparison website. ShoeBuy and PriceRunner were sold on December 30, 2016 and March 18, 2016, respectively.
| |
| ◦ | CityGrid, an advertising network that integrated local content and advertising for distribution to affiliated and third-party publishers across web and mobile platforms, sold December 31, 2018. |
| |
| ◦ | Dictionary.com, an online and mobile dictionary and thesaurus service, sold November 13, 2018. |
| |
| ◦ | Electus, including Notional, a provider of production and producer services for both unscripted and scripted television and digital content, primarily for initial sale and distribution in the United States, sold October 29, 2018. |
| |
| ◦ | The Princeton Review, a provider of educational test preparation, academic tutoring and college counseling services, sold on March 31, 2017. |
| |
| ◦ | ShoeBuy, an Internet retailer of footwear and related apparel and accessories, sold December 30, 2016. |
| |
| ◦ | ASKfm, a questions and answers social network, sold June 30, 2016. |
| |
| ◦ | PriceRunner, a shopping comparison website, sold March 18, 2016. |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
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.
Accounting for Investments and Equity Securities
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. Investmentsmethod and are included in "Long-term investments" in the common stock or in-substance common stock of entities in whichaccompanying consolidated balance sheet. At December 31, 2018, the Company doesdid not have the ability to exercise significant influence over the operating and financial matters of the investee areany investments accounted for using the costequity method.
Investments in companies that IAC does not control, which are not in the formequity securities, other than those of common stock or in-substance common stock, are alsoour consolidated subsidiaries and those accounted for usingunder the equity method, are accounted for at fair value or under the measurement alternative of Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, following its adoption on January 1, 2018, with any changes to fair value recognized within other income (expense), net each reporting period. Under the measurement alternative, equity investments without readily determinable fair values are carried at cost method.minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer; value is generally determined based on a market approach as of the transaction date. An investment will be considered identical or similar if it has identical or similar rights to the equity investments held by the Company. The Company evaluates each cost andreviews its equity method investmentsecurities for impairment on a quarterly basiseach reporting period when there are qualitative factors or events that indicate possible impairment. Factors we consider in making this determination include negative changes in industry and recognizes anmarket conditions, financial performance, business prospects, and other relevant events and factors. When indicators of impairment loss if a decline in value is determined to be other-than-temporary. Such impairment evaluations include, but are not limited to: the current business environment, including competition; going concern considerations such as financial condition, the rate at which the investee utilizes cash and the investee's ability to obtain additional financing to achieve its business plan; the need for changes to the investee's existing business model due to changing business and regulatory environments and its ability to successfully implement necessary changes; and comparable valuations. Ifexist, the Company has not identified events or changes in circumstances that may have a significant adverse effect onprepares quantitative assessments of the fair value of a cost method investment, thenour equity securities, which require judgment and the use of estimates. When our assessment indicates that the fair value of such cost method investmentthe security is not estimated, as it is impracticablebelow the carrying value, the Company writes down the security to do so.its fair value and records the corresponding charge within other income (expense), net. See "Accounting Pronouncements adopted by the Company" below for further information.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 these estimates.
On an ongoing basis, the Company evaluates its estimates and judgments, including those related to: the fair values of marketable securities and other investments; the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the fair values of marketable debt securities and equity securities without readily determinable fair values; 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 uncertainunrecognized tax positions;benefits; 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.
Revenue Recognition
The Company recognizes revenueadopted the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, effective January 1, 2018 using the modified retrospective transition method for open contracts as of the date of initial application. See "Accounting Pronouncements adopted by the Company" below for further information.
The Company accounts for a contract with a customer when persuasive evidenceit has approval and commitment from all parties, the rights of an arrangement exists, servicesthe parties and payment terms are rendered or merchandise is delivered to customers,identified, the fee or price charged is fixed or determinablecontract has commercial substance and collectability of consideration is reasonably assured. Deferred revenueprobable. Revenue is recordedrecognized when payments are received,control of the promised services or goods is transferred to our customers, and in an amount that reflects the consideration the Company is contractually due in advanceexchange for those services or goods.
Transaction Price
The objective of determining the transaction price is to estimate the amount of consideration the Company is due in exchange for its services or goods, including amounts that are variable. The Company determines the total transaction price, including an estimate of any variable consideration, at contract inception and reassesses this estimate each reporting period.
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.
For contracts that have an original duration of one year or less, the Company uses the practical expedient available under ASU No. 2014-09 applicable to such contracts and does not consider the time value of money.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers, which are directly observable or based on an estimate if not directly observable. For our multiple performance obligation arrangements that include functional intellectual property ("IP"), which comprise the downloadable apps and software of the Company's renderingApplications segment, the Company uses a residual approach to determine standalone selling prices for the functional IP.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company has determined that certain costs, primarily commissions paid to employees pursuant to certain sales incentive programs and mobile app store fees, meet the requirements to be capitalized as a cost of services or deliveryobtaining a contract. Commissions paid to employees pursuant to certain sales incentive programs are amortized over the estimated customer relationship period. The Company calculates the estimated customer relationship period as the average customer life, which is
Match Group
Revenue of the dating businesses is substantially derived directly from users in the form of recurring membership fees for subscription-based online personals and related services. Membership revenue is presented net of credits and credit card
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based on historical data. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. For sales incentive programs where the customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs as incurred. The Company generally capitalizes and amortizes mobile app store fees over the term of the applicable subscription.
During the year ended December 31, 2018, the Company recognized expense of $355.3 million related to the amortization of these costs. The current and non-current contract asset balances at December 31, 2018 are $69.8 million and $4.5 million, respectively. The current and non-current contract assets are included in "Other current assets" and "Other non-current assets," respectively, in the accompanying consolidated balance sheet.
Performance Obligations
As permitted under the practical expedient available under ASU No. 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.
Match Group
Match Group revenue is primarily derived directly from users in the form of recurring subscriptions. Subscription revenue is presented net of credits and credit card chargebacks. MembersSubscribers pay in advance, primarily by using a credit card or through mobile app stores, and, subject to certain conditions identified in our terms and conditions, generally all purchases are final and nonrefundable. Fees collected, or contractually due, in advance for memberships areRevenue is initially deferred and is recognized using the straight-line method over the termsterm of the applicable membershipsubscription period, which primarily rangegenerally ranges from one to six months, and corresponding mobile app store fees incurred on such transactions, if any, are deferred and expensed over the same period. Deferred revenue at Dating is $161.1 million and $144.4 million at December 31, 2016 and 2015, respectively.months. Revenue is also earned from online advertising, the purchase of à la carte features and offline events. Online advertising revenue is recognized every timewhen an advertisement is displayed. Revenue from the purchase of à la carte features is recognized based on usage. Revenue and the related expenses associated with offline events areis recognized when each event occurs.
Non-dating'sANGI Homeservices
ANGI revenue consistsis primarily derived from (i) consumer connection revenue, which comprises fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and booking fees received directly from students for in-personcompleted jobs sourced through the Handy platform, and online test preparation classes, access to online test preparation materials(ii) membership subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered and individual tutoring services. Fees from classes and access to online materials are recognized over the periodgeographic location of the course and the period of the online access, respectively. Tutoring fees are recognized based on usage. Deferred revenue at Non-dating is $23.3 million and $25.7 million at December 31, 2016 and 2015, respectively.
HomeAdvisor
HomeAdvisor's lead acceptanceservice. The Company’s consumer connection revenue is generated and recognized when an in-network home service professional is delivered a consumer lead. HomeAdvisor's membershipmatch or when a job sourced through the Handy platform is completed. Membership subscription revenue from service professionals is generatedinitially deferred and is recognized using the straight-line method over the applicable subscription period, which is typically one year. Consumer connection revenue is generally billed one week following a consumer match, with payment due upon receipt of invoice or collected when a consumer schedules a job through subscriptionthe Handy platform. The Company maintains revenue reserves for potential credits for services provided by Handy service professionals to consumers.
ANGI revenue is also derived from Angie's List (i) sales of time-based website, mobile and call center advertising to service professionals and (ii) membership subscription fees from consumers. Angie's List service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional, with the average advertising contract term being approximately one year. Angie's List website, mobile and call center advertising revenue is deferred and recognized ratably over the contract term. Revenue from the sale of advertising in the Angie’s List Magazine is recognized in the period in which the publication is distributed. Angie's List prepaid consumer membership subscription fees are recognized as revenue using the straight-line method over the term of the applicable membership. Membership can besubscription period, which is typically one month, three months, or one year. HomeAdvisor's website hosting
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Vimeo
Vimeo revenue is deferredderived primarily from annual and recognized over the periodmonthly SaaS subscription fees paid by creators for premium capabilities and, to a lesser extent, sales of the hosting agreement. Deferred revenue at HomeAdvisor is $18.8 millionlive streaming hardware, software and $11.9 million at December 31, 2016 and 2015, respectively.
Video
Revenue of businesses included in this segment is generated primarily through media production and distribution, subscriptions and advertising. Production revenue is recognized when the production is available for the customer to broadcast or exhibit, subscription feeprofessional services. Subscription revenue is recognized over the terms of the applicable subscriptions,subscription period, which are typically one month or one year,year.
Dotdash
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is recognizedgenerated primarily through digital display advertisements sold directly and through programmatic advertising networks. Affiliate commerce commission revenue is generated when an ad is displayedDotdash refers users to commerce partner websites resulting in a purchase or over the period earned. Deferred revenue at Vimeo is $36.7 million and $30.4 million at December 31, 2016 and 2015, respectively. Deferred revenue at Electus, CollegeHumor and Notional totals $23.1 million and $24.4 million at December 31, 2016 and 2015, respectively.transaction.
Applications
Substantially all of Applications'Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. The substantial majority of the paid listings displayed by our ApplicationsDesktop businesses areis supplied to us by Google Inc. ("Google") pursuant to our services agreement with Google.
Pursuant to this agreement, those of our ApplicationsDesktop businesses that provide search services transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through one of our ApplicationsDesktop businesses and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing directly and shares a portion of the fee charged to the advertiser with us. We recognizeThe Company recognizes paid listing revenue from Google when it delivers the user's click. In cases where the user’s click is generated due to the efforts of a third partythird-party distributor, we recognize the amount due from Google as revenue and record a revenue share or other payment obligation to the third partythird-party distributor as traffic acquisition costs.
To a significantly lesser extent, Applications'Desktop revenue also includes fees related to subscription downloadable desktop applications as well as display advertisements. Fees related to subscription downloadable desktop applications are generally recognized over the term of the applicable subscription period, which is primarily one or two years. Fees related to display advertisements are recognized when an advertisement is displayed.
Mosaic Group revenue consists primarily of fees related to subscription downloadable mobile applications which are recognized overdistributed through the terms of the applicable subscriptions, primarily one to two years,Apple App and feesGoogle Play stores, as well as display advertisements. Fees related to paidsubscription downloadable mobile downloadable applications and display advertisements, which are generally recognized at the time of the sale and when the adsoftware license is displayed, respectively. Deferreddelivered. To the extent updates or maintenance is required or expected, revenue at SlimWare is $26.1 million and $21.0 million at December 31, 2016 and 2015, respectively.recognized over the term of the applicable subscription period, which is primarily one or two years. Fees related to display advertisements are recognized when an advertisement is displayed.
Emerging & Other
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Publishing
Publishing's revenueRevenue of Ask Media Group consists principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries and display advertisements (sold directly and through programmatic ad sales) and fees related to paid mobile downloadable applications.. The substantial majority of the paid listings that our Publishing businesses displaydisplayed are supplied to us by Google in the manner, and pursuant to the services agreement with Google, which is described above under "Applications."Applications."
OtherThe Daily Beast revenue consists of advertising revenue, which is generated primarily through display advertisements (sold directly and through programmatic ad sales).
ShoeBuy'sBlueCrew revenue consistedconsists of merchandise sales, reduced by incentive discountsservice revenue, which is generated through staffing temporary workers and sales returns,recognized as control of the promised services is transferred to our customers.
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Revenue of College Humor Media and wasIAC Films is generated primarily through media production and distribution and advertising. Production revenue is recognized when deliverycontrol is transferred to the customer had occurred. Delivery was considered to have occurredbroadcast or exhibit, and advertising revenue is recognized when an advertisement is displayed or over the advertising period.
Accounts Receivables, Net of Allowance for Doubtful Accounts and Revenue Reserves
Accounts receivable include amounts billed and currently due from customers. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected. The allowance for doubtful accounts is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history and the specific customer’s ability to pay its obligation. The time between the Company issuance of an invoice and payment due date is not significant; customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date. The Company also maintains allowances to reserve for potential credits issued to consumers or other revenue adjustments. The amounts of these reserves are based primarily upon historical experience.
Deferred Revenue
Deferred revenue consists of advance payments that are received or are contractually due in advance of the Company's performance. The Company’s deferred revenue is reported on a contract by contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the customer took title and assumedterm of the risks and rewardsapplicable subscription period or expected completion of ownership, which was onour performance obligation is one year or less. The deferred revenue balance at January 1, 2018 is $332.2 million. During the dateyear ended December 31, 2018, the Company recognized $330.2 million of shipment. Accruals for returned merchandise were based on historical experience. Shipping and handling fees billed to customers was recorded as revenue. The costs associated with shipping goods to customers were recorded as cost of revenue.
PriceRunner's revenue consisted principally of advertising revenue that depending onwas included in the termsdeferred revenue balance as of January 1, 2018. The current and non-current deferred revenue balances at December 31, 2018 are $360.0 million and $1.7 million, respectively. Non-current deferred revenue is included in "Other long-term liabilities" in the arrangement, was recognized when a user clicked on an ad, or when a user clicked-through on the ad and took a specified action on the destination site.accompanying consolidated balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase. Domestically, cash equivalents primarily consist of AAA rated government money market funds, treasury discount notes, commercial paper rated A1/P1 or better, time deposits and treasury discount notes.certificates of deposit. Internationally, cash equivalents primarily consist of AAA rated treasurygovernment money market funds and time deposits.
MarketableInvestments in Debt Securities
At December 31, 2016, marketable securities consist of commercial paper rated A1/P1, treasury discount notes and short-to-medium-term debt securities issued by investment grade corporate issuers. 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 marketable equity securities as part of its investment strategy. All marketableMarketable debt securities are classified as available-for-saleadjusted to fair value each quarter, and are reported at fair value. Thethe unrealized gains and losses, on marketable securities, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings.
The Company employs a methodology that considers available evidencealso invests in evaluating potential other-than-temporary impairmentsnon-marketable debt securities as part of its investments. Investments are considered to be impairedinvestment strategy. We review our debt securities for impairment each reporting period. The Company recognizes an unrealized loss on debt securities in net earnings when a decline in fair value below the amortized cost basisimpairment is determined to be other-than-temporary. Factors consideredwe consider in determining whether a loss is other-than-temporarymaking such determination include the length of timeduration, severity and extentreason for the decline in value and the potential recovery and our intent to which fair value has been less thansell the amortized cost basis, the financial condition and near-term prospects of the issuer, anddebt security. We also consider whether it is not more likely than not that the Companywe will be required to sell the security before the recovery of its amortized cost basis and whether the amortized cost basis which maycannot be maturity.recovered because of credit losses. If a decline in fair valuean impairment is determinedconsidered to be other-than-temporary, an impairment charge is recorded in current earningsthe debt security will be written down to its fair value and a new cost basis in the investment is established.loss will be recognized within other income (expense), net. At December 31, 2018, marketable debt securities consist of treasury discount notes and commercial paper rated A1/P1 or better.
Certain Risks and Concentrations
A significantmeaningful 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. For the years ended December 31, 2016, 2015 and 2014, revenue from Google represents 26%, 40% and 45%, respectively, of the Company's consolidated revenue. The Company's service agreement became effective on April 1, 2016, following the expiration of the previous services agreement. The servicesInc. ("Google").
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For the years ended December 31, 2018, 2017 and 2016, consolidated revenue earned from Google was $825.2 million, $740.7 million and $824.4 million, representing 19%, 22% and 26%, respectively, of the Company's consolidated revenue. A meaningful portion of this revenue is attributable to the service agreement with Google and earned by the Desktop business within the Applications segment and the Ask Media Group within the Emerging & Other segment. For the years ended December 31, 2018, 2017 and 2016, revenue earned from Google represents 73%, 83% and 87% of Applications revenue and 94%, 96% and 96% of Ask Media Group revenue (and 68%, 48% and 35% of Emerging & Other revenue), respectively. Accounts receivable related to revenue earned from Google totaled $69.1 million and $72.4 million at December 31, 2018 and 2017, respectively.
The services agreement became effective on April 1, 2016, following the expiration of the previous services agreement, and expires on March 31, 2020; however, the Company may choose to terminate the agreement effective March 31, 2019.2020. The services agreement requires that wethe Company comply with certain guidelines promulgated by Google. Google may generally unilaterally update its policies and guidelines without advance notice, which could in turn require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which could be costly to address or otherwise have an adverse effect on our business, financial condition and results of operations. For the years ended December 31, 2016, 2015 and 2014, revenue earned from Google is $824.4 million, $1.3 billion and $1.4 billion, respectively. This revenue is earned by the businesses comprising the Applications and Publishing segments. For the years ended December 31, 2016, 2015 and 2014, Google revenue represents 87% and 73%; 94% and 83%; and 97% and 83%, of Applications and Publishing revenue, respectively. Accounts receivableGoogle’s policy changes related to its Chrome browser became effective on September 12, 2018 and negatively impacted the distribution of our business-to-consumer ("B2C") desktop products. The impact of these changes on revenue earned fromand profits in 2018 were modest as the Company optimized marketing spend in anticipation of the changes. However, we expect these changes to reduce revenue and profits of the Desktop business in the future, which among other reasons led to a $27.7 million impairment of the related indefinite-lived intangible asset in the fourth quarter of 2018. See "Note 21—Subsequent Events (Unaudited)" for a discussion of the Company's amended services agreement with Google totaled $65.8 million and $97.2 million at December 31, 2016 and 2015, respectively.entered into on February 11, 2019. The Company's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. Cash and cash equivalents are maintained with financial institutions and are in excess of Federal Deposit Insurance Corporation insurance limits.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts and revenue reserves. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the specific customer's ability to pay its obligation to the Company and the condition of the general economy and the customer's industry. The Company writes off accounts receivable when they become uncollectible. The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amounts of these reserves are based, in part, on historical experience.
Property and Equipment
Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, or, in the case of leasehold improvements, the lease term, if shorter.
|
| |
| Asset Category | Estimated Useful Lives |
| Buildings and leasehold improvements | 3 to 39 Years |
| Computer equipment and capitalized software | 2 to 3 Years |
| Furniture and other equipment | 3 to 12 Years |
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized internal use software is $46.9$58.1 million and $39.6$46.4 million at December 31, 20162018 and 2015,2017, respectively.
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Business Combinations
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based on detailed valuations that use information and assumptions
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provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the combination as of the acquisition date.
In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements areis initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company determines the fair value of the contingent consideration arrangements 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 risk associated with the obligation to determine the net amount reflected in the consolidated financial statements. Determining the fair value of these arrangements is inherently difficult and subjective. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement and can have a material impact on our consolidated financial statements.measurement. The changes in the remeasured fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount, if applicable, are recognized in “General"General and administrative expense”expense" in the accompanying consolidated statement of operations. See "Note 8—Fair Value Measurements and "Note 6—Financial Instruments"Instruments" for a discussion of contingent consideration arrangements. Goodwill and Indefinite-Lived Intangible Assets
Goodwill acquired in a business combination is assigned to the reporting unit(s) that is expected to benefit from the combination as of the acquisition date. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value.
When the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined. If the carrying value of the reporting unit exceeds its fair value, the implied fair value of the reporting unit's goodwill is calculated (in the same manner as a business combination) and an impairment loss equal to the excess is recorded.
For the Company's annual goodwill test at October 1, 2016,2018, a qualitative assessment of the Match Group, HomeAdvisor Domestic, HomeAdvisor International,MTCH, ANGI, Vimeo, Daily BurnCollege Humor Media and ShoeBuyBlueCrew reporting units' goodwill was performed because the Company concluded it was more likely than not that the fair value of these reporting units was in excess of their respective carrying values. The primary factors that the Company considered in its qualitative assessment for each of these reporting units isare described below:
Match Group'sMTCH's October 1, 20162018 market capitalization of $4.8$15.7 billion exceeded its carrying value by more than 970%approximately $15.1 billion and Match Group'sMTCH's strong operating performance.
ANGI's October 1, 2018 market capitalization of $10.7 billion exceeded its carrying value by approximately $9.6 billion and ANGI's strong operating performance.
The Company performed valuations of the HomeAdvisor Domestic, HomeAdvisor International, Vimeo, College Humor Media and Daily BurnBlueCrew reporting units during 2016.2018. These valuations were prepared primarily in connection with the issuance and/or settlement of equity grants that are denominated in the sharesequity of these businesses. The valuations were prepared time proximate to, however, not as of, October 1, 2016.2018. The fair value of each of these businesses was significantly in excess of its October 1, 20162018 carrying value.
ShoeBuy's expected sales price was significantly in excess of its October 1, 2016 carrying value; which was confirmed by the sales price realized in its sale on December 30, 2016, which resulted in a pre-tax gain of $37.5 million.
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The Company tests goodwill for impairment when it concludes that it is more likely than not that there may be an impairment. For the Company's annual goodwill test at October 1, 2016,2018, the Company concluded that it was not more likely than not thatquantitatively tested the fair values ofDesktop and Mosaic Group reporting units (included in the Applications and Connected Ventures reporting units were greater than their respective carrying values and performed a quantitative test of these reporting units.segment). The Company's quantitative test indicated that the fair value of each of these reporting units isare in excess of itstheir respective carrying value;values; therefore, the goodwill of these reporting units isare not impaired. The PublishingCompany's Dotdash, Ask Media Group and The Daily Beast reporting unit hadunits have no goodwill.
The aggregate goodwill asbalance for the reporting units for which the most recent estimate of October 1, 2016 because the Company recorded an impairment charge equal to the entire $275.4 million balancefair value is less than 110% of the Publishing reporting unit goodwill during the second quarter of 2016, whichtheir carrying values is more fully described below, following a quantitative impairment test as of June 30, 2016.approximately $265.1 million.
The fair value of the Company's reporting units (except for MTCH and ANGI described above) is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock basedstock-based compensation plans, which
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can be a significant factor in the decision to apply the qualitative screen. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on each reporting unit's current results and forecasted future performance, as well as macroeconomic and industry specific factors. The discount rates used in the quantitative test for determining the fair value of the Company's reporting units ranged from 10%12.5% to 15% in 2018 and 12.5% to 17.5% in 2016 and 12% to 22% in 2015.2017. 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 is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors. While a primary driver in the determination of the fair values of the Company's reporting units is the estimate of future revenue and profitability, the determination of fair value is based, in part, upon the Company's assessment of macroeconomic factors, industry and competitive dynamics and the strategies of its businesses in response to these factors.
At October 1, 2016, the fair value of each of the Company's reporting units with goodwill exceeded its carrying value by more than 20%.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair valuevalues of its indefinite-lived intangible assetassets are less than itstheir carrying value,values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1. The Company determines the fair valuesvalue of its indefinite-lived intangible assets using an avoided royalty DCF analyses.valuation analysis. Significant judgments inherent in these analysesthis analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged from 10.5% to 35% in 2018 and 11% to 16% in both 2016 and 2015,2017, and the royalty rates used ranged from 0.75% to 8.0% in 2018 and 2% to 7% in 20162017.
The aggregate indefinite-lived intangible asset balance for which the most recent estimate of fair value is less than 110% of their carrying values is approximately $131.3 million.
The 2018 annual assessment of goodwill did not identify any impairments. The 2018 annual assessment of indefinite-lived intangible assets identified impairment charges of $27.7 million and 1%$1.1 million related to 9%certain Desktop and College Humor Media indefinite-lived trade names, respectively. The indefinite-lived intangible asset impairment charge at Desktop was due to Google’s policy changes related to its Chrome browser which became effective on September 12, 2018 and have negatively impacted the distribution of our B2C downloadable desktop products. The impairment charge related to the B2C trade name was identified in 2015.our annual impairment assessment as of October 1, 2018 and reflects the projected reduction in profits and revenues and the resultant reduction in the assumed royalty rate from these policy changes. The impairment charges are included in "Amortization of intangibles" in the accompanying consolidated statement of operations.
The 2017 annual assessments of goodwill and indefinite-lived intangible assets did not identify any impairments.
While the 2016 annual assessment did not identify any material impairments, during the second quarter of 2016, the Company recorded an impairment charges relatedcharge equal to the entire $275.4 million balanceat IAC Publishing. In connection with the Company's realignment of its reportable segments in the Publishing reporting unit goodwillfourth quarter of 2018, $198.3 million and $11.6$77.0 million was allocated to the Dotdash and the Emerging & Other reportable segments, respectively, based upon their relative fair values as of October 1, 2018. In addition, amortization of intangibles was further impacted by the inclusion of impairment charges in 2016 of $9.0 million and $2.6 million related to certain PublishingDictionary.com and Dotdash indefinite-lived intangible assets.trade names, respectively. The goodwill impairment chargecharges at IAC Publishing was driven by the impact from the new Google contract, traffic trends and monetization challenges and the corresponding impact on the currentthen estimate of fair value. The expected cash flows used in the IAC 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
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were based on forecasted growth rates. The discount rate used in the DCF analysis reflected the risks inherent in the expected future cash flows of the IAC Publishing reporting unit. Determining fair value using a market approach considers multiples of financial metrics based on
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 IAC Publishing reporting unit. To determine a peer group of companies for IAC Publishing, we considered companies relevant in terms of business model, revenue profile, margin and growth characteristics and brand strength. The indefinite-lived intangible asset impairment chargecharges related to certain trade names and trademarks and 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 reflected the risks inherent in the expected future cash flows of the trade names and trademarks. The impairment charge is included in "Amortization of intangibles" in the accompanying consolidated statement of operations.
In 2015, the Company identifiedThe Company’s operating segments are MTCH, ANGI, Vimeo, Dotdash and recorded impairment charges of $88.0 million related to certain indefinite-lived intangible assets at the Publishing segmentApplications, which are also reportable segments, and $14.1 million at the Other segment related to goodwill at ShoeBuy. The indefinite-lived intangible asset impairment charge at Publishing related to certain trade names of certain Askwithin its Emerging & Other direct marketing brands, including Ask.com.reportable segment, Ask Media Group, BlueCrew, The impairment charge reflected the impact of Google ecosystem changes that have impacted our ability to market, the effect of the reduced revenue share on mobile under the terms of the services agreement with Google,Daily Beast, College Humor Media and the shift in focus to higher margin businesses in Publishing's Premium Brands.IAC Films. The combined impact of these factors has reduced the forecasted revenue and profits for these brands and the impairment charge reflected the resultant reduction in fair value. The goodwill impairment charge at ShoeBuy was due to increased investment and the seasonal effect of high inventory levels as of October 1, 2015. The 2014 annual assessment identified no material impairments.
The Company'sCompany’s reporting units are consistent with its
determinationoperating segments, with the exception of
itsDesktop and Mosaic Group, which are separate reporting units within the Applications operating
segments.segment. Goodwill is tested for impairment at the reporting unit level. See
"Note 14—"Note 12—Segment Information"Information" for additional information regarding the Company's method of determining operating and reportable segments.Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, which consist of property and equipment and intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. Amortization of definite-lived intangible assets is computed either on a straight-line basis or based on the pattern in which the economic benefits of the asset will be realized.
Fair Value Measurements
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 market prices for identical assets and liabilities in active markets.
Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market 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 "Note 8—Fair Value Measurements and Financial Instruments" | |
| • | 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 "Note 6—Financial Instruments" for a discussion of fair value measurements made using Level 3 inputs. |
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment are adjusted to fair value only when an impairment is recognized. The Company's financial assets, comprising equity securities without readily determinable fair values, are adjusted to fair value when observable price changes are identified or an impairment is recognized. Such fair value measurements made usingare based predominantly on Level 3 inputs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Traffic Acquisition Costs
Traffic acquisition costs consist of (i) the amortization of fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases and (ii) payments made to partners who distribute our Partnershipsbusiness-to-business customized browser-based applications and who integrate our paid listings into their websites and (ii) fees related to the distribution and facilitation of in-app purchase of product features.websites. These payments include amounts based on revenue share and other arrangements. The Company expenses these payments in the period incurred as a component of cost of revenue.
Advertising Costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines, social media sites and third parties that distribute our ConsumerB2C downloadable applications, offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to the Match Group brands.brands within our MTCH and ANGI segments. Advertising expense is $1.0 billion, $1.2 billion, $1.1 billion and $994.7 million$1.0 billion for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively.
The Company capitalizes and amortizes the costs associated with certain distribution arrangements that require it to pay a fee per access point delivered. These access points are generally in the form of downloadable applications associated with our Consumerdirect-to consumer operations. These fees are amortized over the estimated useful lives of the access points to the extent the Company can reasonably estimate a probable future economic benefit and the period over which such benefit will be realized (generally 18 months). Otherwise, the fees are charged to expense as incurred.
Legal Costs
Legal costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, on potential income tax contingencies as a component of income tax expense.
The Company recognizes liabilitiesevaluates and accounts for uncertain tax positions based onusing a two-step process. The first step is to evaluateapproach. Recognition (step one) occurs when the Company concludes that a tax position, for recognition by determining ifbased solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the weightamount of available evidence indicates itbenefit that is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is moregreater than 50% likely of beingto be realized upon ultimate settlement.settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act imposes a new minimum tax on global intangible low-taxed income ("GILTI") earned by foreign subsidiaries beginning in 2018. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity may make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company elects to recognize the tax on GILTI as a period expense in the period the tax is incurred.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings attributable to IAC shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vested resulting in the issuance of common stock that could share in the earnings of the Company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency Translation and Transaction Gains and Losses
The financial position and operating results of foreign entities whose primary economic environment is based on their local currency are consolidated using the local currency as the functional currency. These local currency assets and liabilities
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses of these operations are translated at average rates of exchange during the period. Translation gains and losses are included in accumulated other comprehensive income as a component of shareholders' equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the consolidated statement of operations as a component of other income (expense), net. See
"Note 20—"Note 17—Consolidated Financial Statement Details"Details" for additional information regarding foreign currency exchange gains and losses.Translation gains and losses relating to foreign entities that are liquidated or substantially liquidated are reclassified out of accumulated other comprehensive income (loss) into earnings. Such losses totaled $0.1 million and gains totaled $2.2$0.7 million and $9.9 million during the yearyears ended December 31, 20152018, 2017 and is2016, respectively, and were included in "Other income (expense), net" in the accompanying consolidated statement of operations.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is generally expensed over the requisite service period. See "Note 13—"Note 11—Stock-based Compensation"Compensation" for a discussion of the Company's stock-based compensation plans. Redeemable Noncontrolling Interests
Noncontrolling interests in the consolidated subsidiaries of the Company are ordinarily reported on the consolidated balance sheet within shareholders' equity, separately from the Company's equity. However, securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholders' equity. Accordingly, all noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders' equity in the accompanying consolidated balance sheet.
In connection with the acquisition of certain subsidiaries, management of these businesses has retained an ownership interest. The Company is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the Company to purchase their interests or allow the Company to acquire such interests at fair value, respectively. The put arrangements do not meet the definition of a derivative instrument as the put agreements do not provide for net settlement. These put and call arrangements become exercisable by the Company and the counter-party at various dates in the future. DuringTwo of these arrangements were exercised during both the years ended December 31, 20162018 and 2015,2017 and one and two of these arrangements respectively, were exercised. No put or call arrangements werewas exercised during 2014.the year ended December 31, 2016. These put arrangements are exercisable by the counter-party outside the control of the Company. Accordingly, to the extent that the fair value of these interests exceeds the value determined by normal noncontrolling interest accounting, the value of such interests is adjusted to fair value with a corresponding adjustment to additional paid-in capital. During the years ended December 31, 2016, 20152018, 2017 and 2014,2016, the Company recorded adjustments of $7.9$4.1 million, $23.2$6.3 million and $27.8$7.9 million, respectively, to increase these interests to fair value. Fair value determinations require high levels of judgment and are based on various valuation techniques, including market comparables and discounted cash flow projections.
Noncontrolling InterestsRecent Accounting Pronouncements
During the quarter ended March 31, 2016,Accounting Pronouncements adopted by the Company reallocated amounts within
ASU No. 2014-09, Revenue from Contracts with Customers
In May 2014, the accounts comprising shareholders' equity to correct the amount of noncontrolling interests that was initially recorded following the IPO of Match Group,FASB issued ASU No. 2014-09, which occurred on November 24, 2015.superseded nearly all previous revenue recognition guidance. The noncontrolling interests should have been recordedCompany adopted ASU No. 2014-09 effective January 1, 2018 using the net book value of Match Group rather than the net IPO proceeds. In addition, the adjustment allocates the proportionate sharemodified retrospective transition method for open contracts as of the accumulated other comprehensive lossdate of initial application. The cumulative effect to the Company's retained earnings at January 1, 2018 was an increase of $40.2 million, of which $3.4 million was related to the noncontrolling interests balance. The reallocation has no effect on net income orinterest in ANGI; the adjustment to retained earnings per share. Based on our assessment of both qualitative and quantitative factors, the reallocation was not considered materialprincipally related to the consolidated financial statementsCompany’s ANGI and Applications segments.
Contents
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RecentWithin ANGI, the effect of the adoption of ASU No. 2014-09 is that commissions paid to employees pursuant to certain sales incentive programs, which represent the incremental direct costs of obtaining a service professional contract, are now capitalized and amortized over the estimated life of a service professional (also referred to as the estimated customer relationship period). These costs were expensed as incurred prior to January 1, 2018. The cumulative effect of the adoption of ASU No. 2014-09 was the establishment of a current and non-current asset for capitalized sales commissions of $29.7 million and $4.2 million, respectively, and a related deferred tax liability of $8.0 million, resulting in a net increase to retained earnings of $25.9 million on January 1, 2018.
Within Applications, the primary effect of the adoption of ASU No. 2014-09 is to accelerate the recognition of the portion of the revenue of certain desktop applications sold by SlimWare that qualifies as functional intellectual property ("functional IP") under ASU No. 2014-09. This revenue was previously deferred and recognized over the applicable subscription term. The cumulative effect of the adoption of ASU No. 2014-09 for SlimWare was a reduction in deferred revenue of $20.3 million and the establishment of a deferred tax liability of $4.9 million, resulting in a net increase to retained earnings of $15.5 million on January 1, 2018.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the impact of the adoption of ASU No. 2014-09 by segment under Accounting PronouncementsStandards Codification ("ASC") 606, Revenue from Contracts with Customers, as reported, and ASC 605, Revenue Recognition, for the year ended December 31, 2018.
|
| | | | | | | | | | | |
| | Under ASC 606
(as reported) | | Under ASC 605 | | Effect of adoption of ASU No. 2014-09 |
| | (In thousands) |
| Revenue by segment: | | | | | |
| Match Group | $ | 1,729,850 |
| | $ | 1,729,850 |
| | $ | — |
|
| ANGI Homeservices | 1,132,241 |
| | 1,132,241 |
| | — |
|
| Vimeo | 159,641 |
| | 160,931 |
| | (1,290 | ) |
| Dotdash | 130,991 |
| | 130,991 |
| | — |
|
| Applications | 582,287 |
| | 581,492 |
| | 795 |
|
| Emerging & Other | 528,250 |
| | 528,250 |
| | — |
|
| Inter-segment eliminations | (368 | ) | | (368 | ) | | — |
|
| Total | $ | 4,262,892 |
| | $ | 4,263,387 |
| | $ | (495 | ) |
| | | | | | |
| Operating costs and expenses by segment: |
| Match Group | $ | 1,176,556 |
| | $ | 1,176,556 |
| | $ | — |
|
| ANGI Homeservices | 1,068,335 |
| | 1,073,275 |
| | (4,940 | ) |
| Vimeo | 195,235 |
| | 196,212 |
| | (977 | ) |
| Dotdash | 112,213 |
| | 112,213 |
| | — |
|
| Applications | 487,453 |
| | 484,644 |
| | 2,809 |
|
| Emerging & Other | 498,286 |
| | 498,286 |
| | — |
|
| Corporate | 159,675 |
| | 159,675 |
| | — |
|
| Total | $ | 3,697,753 |
| | $ | 3,700,861 |
| | $ | (3,108 | ) |
| | | | | | |
| Operating income (loss) by segment: |
| Match Group | $ | 553,294 |
| | $ | 553,294 |
| | $ | — |
|
| ANGI Homeservices | 63,906 |
| | 58,966 |
| | 4,940 |
|
| Vimeo | (35,594 | ) | | (35,281 | ) | | (313 | ) |
| Dotdash | 18,778 |
| | 18,778 |
| | — |
|
| Applications | 94,834 |
| | 96,848 |
| | (2,014 | ) |
| Emerging & Other | 29,964 |
| | 29,964 |
| | — |
|
| Corporate | (160,043 | ) | | (160,043 | ) | | — |
|
| Total | $ | 565,139 |
| | $ | 562,526 |
| | $ | 2,613 |
|
| | | | | | |
| Net earnings | $ | 757,747 |
| | $ | 755,741 |
| | $ | 2,006 |
|
ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued ASU No. 2016-01, which updates certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Under ASU No. 2016-01, equity securities, other than those of our consolidated subsidiaries and those accounted for under the equity method, will be measured at fair value with changes in fair
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
value recognized in the statement of operations each reporting period. ASU No. 2016-01 is effective for reporting periods beginning after December 15, 2017. There was no cumulative impact to the Company's consolidated financial statements upon adoption of ASU No. 2016-01 on January 1, 2018. The adoption of ASU No. 2016-01 increases the volatility of the Company's other income (expense), net as a result of the remeasurement of these instruments. For the year ended December 31, 2018, other income (expense), net includes net unrealized gains related to certain equity securities that were adjusted to fair value in the second quarter of 2018 in accordance with ASU No. 2016-01 of $126.4 million. See "Note 6—Financial Instruments" for additional information. ASU No. 2016-18, Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18, which requires companies to explain the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Therefore, amounts generally described as restricted cash or restricted cash equivalents are combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows. ASU No. 2016-18 also requires companies to disclose the nature of their restricted cash and restricted cash equivalents balances. Additionally, when cash, cash equivalents, restricted cash, and restricted cash equivalents are presented within different captions on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. ASU No. 2016-18 is effective for reporting periods beginning after December 15, 2017. The Company's adoption of ASU No. 2016-18 effective January 1, 2018, on a retrospective basis, did not have a material effect on its consolidated financial statements.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the total amounts shown in the consolidated statement of cash flows:
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| | (In thousands) |
| Cash and cash equivalents | $ | 2,131,632 |
| | $ | 1,630,809 |
| | $ | 1,329,187 |
| | $ | 1,481,447 |
|
| Restricted cash included in other current assets | 1,633 |
| | 2,873 |
| | 20,464 |
| | 126 |
|
| Restricted cash included in other assets | 420 |
| | — |
| | 10,548 |
| | 20,100 |
|
| Total cash, cash equivalents and restricted cash as shown on the consolidated statement of cash flows | $ | 2,133,685 |
| | $ | 1,633,682 |
| | $ | 1,360,199 |
| | $ | 1,501,673 |
|
Restricted cash at December 31, 2018 primarily consists of a cash collateralized letter of credit and a deposit related to corporate credit cards.
Restricted cash at December 31, 2017 primarily supports a letter of credit to a supplier, which was released to the Company in the second quarter of 2018.
Restricted cash at December 31, 2016 primarily included funds held in escrow for the redemption and repurchase of IAC Senior Notes and the MyHammer tender offer. In the first quarter of 2017, the Senior Notes were redeemed and repurchased and the funds held in escrow for the MyHammer tender offer were returned to the Company.
Restricted cash at December 31, 2015 primarily includes the repurchase of IAC Senior Notes.
ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued ASU No. 2018-15, which clarifies the accounting for implementation costs in a cloud computing arrangement that is a services contract to follow the internal-use software guidance of ASC 350-40, Intangibles - Goodwill and Other, Internal-use Software. The provisions of ASU No. 2018-15 are effective for reporting periods beginning after December 15, 2019, including interim periods and early adoption is permitted, including adoption in any interim period. The provisions of ASU No. 2018-15 may be adopted prospectively to all implementation costs incurred after the date of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adoption or retrospectively. The Company early adopted the provisions of ASU No. 2018-15 on October 1, 2018 prospectively and the adoption of this standard did not have material impact on its consolidated financial statements.
ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU No. 2018-07, which largely aligns the measurement and classification guidance for share-based payments granted to non-employees with the guidance for share-based payments granted to employees. The new guidance supersedes Subtopic 505-50, Equity - Equity-Based payments to Nonemployees. ASU No. 2018-07 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU No. 2018-07 effective April 1, 2018 and its adoption did not have a material effect on its consolidated financial statements. The effect of the adoption of ASU No. 2018-07 will be to minimize the volatility of expense related to stock-based awards to non-employees in the future.
Accounting PronouncementsPronouncement not yet adopted by the Company
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year. In March, April, May and December 2016, the FASB issued ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20, 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 No. 2014-09 may either be applied retrospectively to each prior period presented or using the modified retrospective approach with the cumulative effect recognized as of the date of initial application. The Company will adopt ASU No. 2014-09, as amended by ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20, using the modified retrospective approach effective January 1, 2018. The Company is currently evaluating the impact the adoption of these standard updates will have on its consolidated financial statements.2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the statement of financial position. The provisions of ASU No. 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach.2018. The Company is currently evaluatingwill adopt the impact the adoption of this standard update will have on its consolidated financial statements.
new lease guidance effective January 1, 2019. In March 2016,July 2018, the FASB issued ASU No. 2016-09,2018-11, Leases (Topic 842): Targeted Improvements, which provides the option of an additional transition method that allows entities to Employee Share-Based Payments Accounting (Topic 718).initially apply the new lease guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The update is intendedCompany expects to simplify existing guidance on various aspects ofimplement 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 oftransition method option provided by ASU No. 2016-09 are effective for reporting periods beginning after December 15, 2016; early adoption is permitted.2018-11.
The primary effects ofCompany is not a lessor, has no capitalized leases and does not expect to enter into any capitalized leases prior to the adoption of ASU No. 2016-09 on2016-02. Accordingly, the Company’s resultsCompany does not expect the amount or classification of rent expense in its statement of operations cash flows and earnings per share willto be due toaffected by the change in the treatmentadoption of the excess tax benefit (deficiency) related to equity awards to employees upon exercise of stock options and the vesting of restricted stock units.ASU No. 2016-02. The table below illustrates this effect.
|
| | | | |
Excess tax benefit (deficiency) of equity awards to employees upon exercise of stock options and the vesting of restricted stock units: | | Accounting under current GAAP: | | Accounting following adoption of ASU No. 2016-09: |
Statement of operations | | Treated as an increase (or decrease) to additional paid-in capital when realized (i.e., reduction of income taxes payable) | | Included in the determination of the income tax provision or benefit upon option exercise or share vesting |
Statement of cash flows | | Treated as a financing cash flow | | Treated as an operating cash flow |
Calculation of fully diluted shares for the determination of earnings per share | | Included as a component of the assumed proceeds in applying the treasury stock method | | Excluded from the assumed proceeds in applying the treasury stock method |
The expectedprimary effect of the adoption of ASU No. 2016-09 for2016-02 will be the recognition of a right of use asset and related lease liability to reflect the Company's rights and obligations under its operating leases. The Company will also be required to increase reported net earnings (or reduce reported net loss), operating cash flow and basic earnings per share (or reduce reported net loss per share). provide the additional disclosures stipulated in ASU No. 2016-02.
The number of shares used in the calculation of fully diluted earnings per share will also increase due to the reduction in assumed proceeds under the treasury stock method. The actual effect on fully diluted earnings per share could be an increase or a decrease in any period, which will depend upon the increase in reported earnings and the increase in the number of shares included in the fully diluted earnings per share calculation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of January 1, 2017, the Company will adopt the change in treatment of excess tax benefit (deficiency) using the modified retrospective approach with the cumulative effect recognized as of the date of initial adoption and will apply the provisions of ASU No. 2016-092016-02 will not have an impact on the leverage calculation set forth in any of the agreements governing the outstanding debt of the Company or its MTCH and ANGI subsidiaries, or our credit agreement or the credit agreement of MTCH and ANGI because, in each circumstance, the leverage calculations are not affected by the lease liability that will be recorded upon adoption of the new standard.
While the Company's evaluation of the impact of the adoption of ASU No. 2016-02 on its consolidated financial statements continues, outlined below is a summary of the status of the Company's progress:
the Company has selected a software solution to implement ASU No. 2016-02;
the Company has input lease summaries into the software solution;
the Company is assessing the other inputs required in connection with the adoption of ASU No. 2016-02; and
the Company is developing its accounting policy, procedures and internal controls related to the presentation onnew standard.
Development of the statementselected software solution by the third-party vendor is ongoing. While significant progress has been made, certain key deliverables remain, which the Company expects to be delivered in March 2019. The Company's ability to adopt ASU No. 2016-02 in an efficient and effective manner is contingent upon the delivery and testing of cash flows usingthese remaining deliverables. The Company has been able to develop a preliminary estimate of the retrospective approach.
To illustrateimpact of the effectadoption of ASU No. 2016-092016-02 through the use of the third-party software solution, supplemented by our user acceptance testing. This preliminary estimate is that a $160 million right of use asset and related lease liability will be recognized on the Company’s results for the year ended December 31, 2016, the table below illustrates the change in the Company’s reported results after giving pro forma effect to ASU No. 2016-09 as if it had been in effect on January 1, 2016.
|
| | | | | | | | |
| | | Reported results under current GAAP | | Pro forma results assuming ASU No. 2016-09 had been in effect on January 1, 2016 |
| | | (In thousands, except per share data) |
| Net (loss) earnings | | $ | (16,151 | ) | | $ | 33,255 |
|
| Net earnings attributable to noncontrolling interests | | (25,129 | ) | | (30,024 | ) |
| Net (loss) earnings attributable to IAC shareholders | | (41,280 | ) | | 3,231 |
|
| Cash flows provided by operating activities attributable to continuing operations | | 292,377 |
| | 344,141 |
|
| Cash flows used in financing activities attributable to continuing operations | | (451,065 | ) | | (502,829 | ) |
| Basic (loss) earnings per share from continuing operations | | $ | (0.52 | ) | | $ | 0.10 |
|
| Fully diluted loss per share from continuing operations | | $ | (0.52 | ) | | $ | (0.19 | ) |
In August 2016, the FASB ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which makes clarifications to how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. The provisions of ASU No. 2016-15 are effective for reporting periods beginning after December 15, 2017, including interim periods, and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable; early adoption is permitted.Company's consolidated balance sheet upon adoption. The Company does not expect the adoption of this standard update to have a material impact on its consolidated financial statements and is currently evaluating the method and timingresults of adoption.operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which is intended to simplify the accounting for goodwill impairment. The guidance will eliminate the requirement to calculate the implied fair value of goodwill under today’s two-step impairment test to measure a goodwill impairment charge. The provisions of ASU No. 2017-04 are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. The provisions of ASU 2017-04 are to be applied using a prospective approach. The Company will adopt the provisions of ASU 2017-04 on January 1, 2017 and does not expect the adoption of this standard update to have a material impact on its consolidated financial statements.
Accounting Pronouncement adopted by the Company
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 No. 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 related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with debt discounts and premiums, 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 No. 2015-03 and ASU No. 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.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 3—INCOME TAXES
U.S. and foreign (loss) earnings from continuing operations(loss) before income taxes and noncontrolling interests are as follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| U.S. | $ | (248,622 | ) | | $ | 79,639 |
| | $ | 174,792 |
| $ | 630,417 |
| | $ | (52,606 | ) | | $ | (248,433 | ) |
| Foreign | 167,348 |
| | 63,234 |
| | 95,137 |
| 131,141 |
| | 119,564 |
| | 167,348 |
|
| Total | $ | (81,274 | ) | | $ | 142,873 |
| | $ | 269,929 |
| $ | 761,558 |
| | $ | 66,958 |
| | $ | (81,085 | ) |
The components of the (benefit)income tax provision for income taxes attributable to continuing operations(benefit) are as follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Current income tax provision (benefit): | | | | | | | | | | |
| Federal | $ | 23,343 |
| | $ | 67,505 |
| | $ | (45,842 | ) | $ | (2,849 | ) | | $ | (31,844 | ) | | $ | 23,343 |
|
| State | 3,662 |
| | 7,785 |
| | (14,787 | ) | 2,569 |
| | 1,964 |
| | 3,662 |
|
| Foreign | 27,242 |
| | 14,012 |
| | 19,132 |
| 38,770 |
| | 24,108 |
| | 27,242 |
|
| Current income tax provision (benefit) | 54,247 |
| | 89,302 |
| | (41,497 | ) | 38,490 |
| | (5,772 | ) | | 54,247 |
|
| Deferred income tax (benefit) provision: | | | | | | |
| | | | | | | |
| Deferred income tax provision (benefit): | | | | | | |
| Federal | (100,798 | ) | | (50,254 | ) | | 74,255 |
| (21,792 | ) | | (255,477 | ) | | (100,798 | ) |
| State | (9,518 | ) | | (3,727 | ) | | 3,090 |
| 172 |
| | (28,364 | ) | | (9,518 | ) |
| Foreign | (8,865 | ) | | (5,805 | ) | | (476 | ) | (13,059 | ) | | (1,437 | ) | | (8,865 | ) |
| Deferred income tax (benefit) provision | (119,181 | ) | | (59,786 | ) | | 76,869 |
| |
| Income tax (benefit) provision | $ | (64,934 | ) | | $ | 29,516 |
| | $ | 35,372 |
| |
| Deferred income tax benefit | | (34,679 | ) | | (285,278 | ) | | (119,181 | ) |
| Income tax provision (benefit) | | $ | 3,811 |
| | $ | (291,050 | ) | | $ | (64,934 | ) |
The currenttax provision for the year ended December 31, 2018 includes a $143.3 million benefit for excess tax deductions attributable to stock-based compensation. Of this amount, $142.2 million reduced income taxes payable and $1.1 million increased the deferred tax payableasset for net operating losses ("NOLs"). The deferred tax asset for NOLs was reducedincreased by $51.8 million, $56.4 million and $45.0$361.8 million for the yearsyear ended December 31, 2016, 2015 and 2014, respectively,2017 for excess tax deductions attributable to stock-based compensation. The related income tax benefit was recorded as a component of the deferred income tax benefit.The current income tax payable was reduced by $51.8 million for the year ended December 31, 2016 for excess tax deductions attributable to stock-based compensation. For the year ended December 31, 2016, the related income tax benefits arewere recorded as increases to additional paid-in capital.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income taxes receivable (payable) and deferred tax assets (liabilities) are included in the following captions in the accompanying consolidated balance sheet at December 31, 20162018 and 2015:2017:
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Income taxes receivable (payable): | | | | | | |
| Other current assets | $ | 41,352 |
| | $ | 26,793 |
| $ | 10,132 |
| | $ | 33,239 |
|
| Other non-current assets | 1,615 |
| | 1,564 |
| 11,401 |
| | 1,949 |
|
| Accrued expenses and other current liabilities | (5,788 | ) | | (33,029 | ) | (12,745 | ) | | (11,798 | ) |
| Income taxes payable | (33,528 | ) | | (33,692 | ) | (37,584 | ) | | (25,624 | ) |
| Net income taxes receivable (payable) | $ | 3,651 |
| | $ | (38,364 | ) | |
| Net income taxes payable | | $ | (28,796 | ) | | $ | (2,234 | ) |
| | | | | | | |
| Deferred tax assets (liabilities): | | | | | | |
| Other non-current assets | $ | 2,511 |
| | $ | 1,970 |
| $ | 64,786 |
| | $ | 66,321 |
|
| Deferred income taxes | (228,798 | ) | | (348,773 | ) | (23,600 | ) | | (35,070 | ) |
| Net deferred tax liabilities | $ | (226,287 | ) | | $ | (346,803 | ) | |
| Net deferred tax assets | | $ | 41,186 |
| | $ | 31,251 |
|
The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Deferred tax assets: | | | | | | |
| Accrued expenses | $ | 40,273 |
| | $ | 36,418 |
| $ | 23,525 |
| | $ | 22,234 |
|
| Net operating loss carryforwards | 63,948 |
| | 68,048 |
| |
| NOL carryforwards | | 291,639 |
| | 292,812 |
|
| Tax credit carryforwards | 11,570 |
| | 13,753 |
| 89,397 |
| | 78,715 |
|
| Stock-based compensation | 87,914 |
| | 76,285 |
| 82,698 |
| | 77,976 |
|
| Cost method investments | 9,955 |
| | 6,251 |
| |
| Equity method investments | 17,455 |
| | 17,105 |
| |
| Intangible and other assets | 13,708 |
| | — |
| |
| Other | 20,089 |
| | 16,057 |
| 30,106 |
| | 42,331 |
|
| Total deferred tax assets | 264,912 |
| | 233,917 |
| 517,365 |
| | 514,068 |
|
| Less valuation allowance | (88,170 | ) | | (90,482 | ) | (115,853 | ) | | (132,598 | ) |
| Net deferred tax assets | 176,742 |
| | 143,435 |
| 401,512 |
| | 381,470 |
|
| | | | | |
| Deferred tax liabilities: | | | | | | |
| Investment in subsidiaries | (385,474 | ) | | (382,254 | ) | (238,650 | ) | | (247,167 | ) |
| Intangible and other assets | — |
| | (88,846 | ) | |
| Intangibles | | (77,669 | ) | | (87,811 | ) |
| Fair value investment | | (22,927 | ) | | — |
|
| Other | (17,555 | ) | | (19,138 | ) | (21,080 | ) | | (15,241 | ) |
| Total deferred tax liabilities | (403,029 | ) | | (490,238 | ) | (360,326 | ) | | (350,219 | ) |
| Net deferred tax liabilities | $ | (226,287 | ) | | $ | (346,803 | ) | |
| Net deferred tax assets | | $ | 41,186 |
| | $ | 31,251 |
|
At December 31, 2016,2018, the Company has federal and state net operating losses ("NOLs")NOLs of $71.8$856.0 million and $123.5$698.7 million, respectively. If not utilized, the$13.9 million of federal NOLs can be carried forward indefinitely, and the remainder will expire at various times primarily between 2023 and 2037, and the state NOLs, if not utilized, will expire at various times between 20302019 and 2036, and the2038.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Federal and state NOLs will expire at various times between 2017of $569.9 million and 2036. Utilization of federal$350.4 million, respectively, can be used against future taxable income without restriction and statethe remaining NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, separate return limitations, and applicable state law. At December 31, 2016,2018, the Company has foreign NOLs of $126.3$383.4 million available to offset future income. Of these foreign NOLs, $112.4$352.0 million can be carried forward indefinitely and $13.9$31.4 million will expire at various times between 20172019 and 2036.2038. During 2016,2018, the Company recognized tax benefits related to NOLs of $19.8$9.5 million. At December 31, 2016, the Company has federal and state capital losses of $16.5 million and $26.2 million, respectively. If not utilized, the capital losses will expire between 2017 and 2021. Utilization of capital losses will be limited to the Company's ability to generate future capital gains.
At December 31, 2016,2018, the Company has tax credit carryforwards of $18.3$105.4 million. Of this amount, $9.1$53.2 million relates to state taxcredits for foreign taxes, $48.3 million relates to credits for research activities and $3.9 million relates to federal credits for foreign taxes, and $5.3 million relates to various state and local taxother credits. Of these credit carryforwards, $11.0$24.2 million can be carried forward indefinitely and $7.3$81.2 million will expire primarily by 2018.between 2019 and 2038.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience.
During 2016,2018, the Company's valuation allowance decreased by $2.3$16.7 million primarily due to thea decrease in state and foreign net operating losses and foreign tax credits partially offset by an increase in federalsubject to valuation allowance and statethe realization of previously unbenefited capital losses and other-than-temporary impairment charges on certain cost method investments.losses. At December 31, 2016,2018, the Company has a valuation allowance of $88.2$115.9 million related to the portion of tax loss carryforwards, foreign tax credits and other items for which it is more likely than not that the tax benefit will not be realized.
A reconciliation of the income tax provision (benefit) provision to the amounts computed by applying the statutory federal income tax rate to earnings from continuing operations before income taxes is shown as follows:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Income tax (benefit) provision at the federal statutory rate of 35% | $ | (28,446 | ) | | $ | 50,006 |
| | $ | 94,475 |
|
| Change in tax reserves, net | (828 | ) | | (2,928 | ) | | (86,151 | ) |
| Foreign income taxed at a different statutory tax rate | (20,277 | ) | | (6,077 | ) | | (10,456 | ) |
| State income taxes, net of effect of federal tax benefit | (3,880 | ) | | 2,208 |
| | 7,240 |
|
| Realization of certain deferred tax assets | — |
| | (22,440 | ) | | — |
|
| Non-taxable contingent consideration fair value adjustments | 1,020 |
| | (4,517 | ) | | (4,439 | ) |
| Non-taxable foreign currency exchange gains | (6,837 | ) | | (4,306 | ) | | — |
|
| Unbenefited losses | 1,730 |
| | 4,264 |
| | 5,433 |
|
| Non-deductible goodwill associated with the sale of Urbanspoon | — |
| | — |
| | 6,982 |
|
| Non-taxable sale and non-deductible goodwill associated with ShoeBuy | (13,142 | ) | | 4,920 |
| | — |
|
| Goodwill impairment of Publishing | 10,649 |
| | — |
| | — |
|
| Non-deductible impairments for certain cost method investments | 3,489 |
| | 2,341 |
| | 23,310 |
|
| Deferred tax adjustment for enacted changes in tax laws and rates | (4,594 | ) | | — |
| | — |
|
| Other, net | (3,818 | ) | | 6,045 |
| | (1,022 | ) |
| Income tax (benefit) provision | $ | (64,934 | ) | | $ | 29,516 |
| | $ | 35,372 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Income tax provision (benefit) at the federal statutory rate of 21% (35% for 2017 and 2016) | $ | 159,927 |
| | $ | 23,435 |
| | $ | (28,446 | ) |
| State income taxes, net of effect of federal tax benefit | 14,887 |
| | 86 |
| | (3,880 | ) |
| Stock-based compensation | (129,654 | ) | | (358,901 | ) | | 3,998 |
|
| Realization of certain deferred tax assets | (13,200 | ) | | (3,133 | ) | | — |
|
| Transition tax | (9,190 | ) | | 62,667 |
| | — |
|
| Deferred tax adjustment for enacted changes in tax laws and rates | (7,488 | ) | | 705 |
| | (4,594 | ) |
| Research credit | (4,023 | ) | | (5,304 | ) | | (2,231 | ) |
| Foreign income taxed at a different statutory tax rate | (3,206 | ) | | (14,725 | ) | | (27,115 | ) |
| Non-taxable sale and non-deductible goodwill associated with ShoeBuy | — |
| | — |
| | (13,142 | ) |
| Goodwill impairment of Dotdash and Emerging & Other | — |
| | — |
| | 10,649 |
|
| Non-deductible impairments for certain cost method investments | — |
| | 2,669 |
| | 3,489 |
|
| Other, net | (4,242 | ) | | 1,451 |
| | (3,662 | ) |
| Income tax provision (benefit) | $ | 3,811 |
| | $ | (291,050 | ) | | $ | (64,934 | ) |
No income taxes have been provided on indefinitely reinvested earnings of certain foreign subsidiaries aggregating $680.2 million at December 31, 2016. The estimated amount of the unrecognized deferred income tax liability with respect to such earnings would be $169.3 million.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including penalties but excluding interest, is as follows:
| | | | December 31, | December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Balance at January 1 | $ | 40,808 |
| | $ | 30,386 |
| | $ | 275,813 |
| $ | 36,732 |
| | $ | 38,372 |
| | $ | 40,808 |
|
| Additions based on tax positions related to the current year | 2,033 |
| | 4,227 |
| | 2,159 |
| 10,334 |
| | 2,050 |
| | 2,033 |
|
| Additions for tax positions of prior years | 2,676 |
| | 14,467 |
| | 1,622 |
| 4,716 |
| | 1,994 |
| | 2,676 |
|
| Reductions for tax positions of prior years | (743 | ) | | (1,556 | ) | | (5,611 | ) | (400 | ) | | (3,761 | ) | | (743 | ) |
| Settlements | (5,107 | ) | | — |
| | (5,092 | ) | — |
| | — |
| | (5,107 | ) |
| Expiration of applicable statutes of limitations | (1,295 | ) | | (6,716 | ) | | (238,505 | ) | (2,507 | ) | | (1,923 | ) | | (1,295 | ) |
| Balance at December 31 | $ | 38,372 |
| | $ | 40,808 |
| | $ | 30,386 |
| $ | 48,875 |
| | $ | 36,732 |
| | $ | 38,372 |
|
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Included in the income tax provision for continuing operations for the years ended December 31, 2016, 20152018, 2017 and 20142016 is a $0.4$0.3 million expense, $0.1 million expensebenefit and $58.5$0.4 million benefit,expense, respectively, net of related deferred taxes of $0.2 million, less than $0.1 million and $35.3 million, respectively, for interest on unrecognized tax benefits. Included in the income tax provision for discontinued operations for the years ended December 31, 2016, 2015 and 2014 is a less than $0.1 million benefit, less than $0.1 million benefit and $19.7 million benefit, respectively, net of related deferred taxes of less than $0.1 million, less than $0.1 million and $11.7$0.2 million, respectively, for interest on unrecognized tax benefits. At December 31, 20162018 and 2015,2017, the Company has accrued $2.6$3.4 million and $2.5$3.0 million, respectively, for the payment of interest. At December 31, 20162018 and 2015,2017, the Company has accrued $1.7$1.4 million and $2.2$1.7 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 ("IRS") is currently auditing the Company’s federal income tax returns for the years ended December 31, 2010 through 2012.2016. The statute of limitations for the years 2010 through 20122015 has been extended to December 31, 2017.2019. Various other jurisdictions are open to examination for tax years beginning with 2009. Income taxes payable include reservesunrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reservesWe consider many factors when evaluating and estimating our tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided may be material. Differences betweenwill not have a material impact on the reserves for income tax contingencies and the amounts owed byliquidity, results of operations, or financial condition of the Company, these matters are recordedsubject to inherent uncertainties and management’s view of these matters may change in the period they become known.future.
At December 31, 20162018 and 2015,2017, unrecognized tax benefits, including interest and penalties, were $41.0$52.3 million and $43.4$39.7 million, respectively. If unrecognized tax benefits at December 31, 20162018 are subsequently recognized, $37.7$49.1 million, net of related deferred tax assets and interest, would reduce income tax expense for continuing operations.expense. The comparable amount as of December 31, 20152017 was $41.0$37.2 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $6.9$21.6 million by December 31, 2017,2019, due to settlements and expirations of statutes of limitations; alllimitations or other settlements; $21.6 million of which would reduce the income tax provision for continuing operations.provision.
NOTE 4—BUSINESS COMBINATION
On October 28, 2015, Match Group completedDecember 22, 2017, the purchaseU.S. enacted the Tax Act. The Tax Act subjected to U.S. taxation certain previously deferred earnings of allforeign subsidiaries as of December 31, 2017 ("Transition Tax") and implemented a number of changes that took effect on January 1, 2018, including but not limited to, a reduction of the outstanding sharesU.S. federal corporate tax rate from 35% to 21% and a new minimum tax on GILTI earned by foreign subsidiaries. The Company was able to make a reasonable estimate of Plentyoffish Media Inc. ("PlentyOfFish"),the Transition Tax and recorded 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 Groupprovisional tax expense in the secondfourth quarter of 2016.
2017. In the third quarter of 2018, the Company finalized this calculation, which resulted in a $9.2 million reduction in the Transition Tax. The financial resultsnet reduction in the Transition Tax was due primarily to the utilization of PlentyOfFish areadditional foreign tax credits and a reduction in state taxes, partially offset by additional taxable earnings and profits of our foreign subsidiaries based on recently issued IRS guidance. The adjustment of the Company’s provisional tax expense was recorded as a change in estimate in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which is also included in the Company's consolidated financial statements, within the Match Group segment, beginning October 28, 2015. For the year ended December 31, 2015, the Company included $8.0 millionFASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB
Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
118"), whichwasissued and adopted by the Company in March 2018. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.
At December 31, 2018, all of the Company’s international cash can be repatriated without significant tax consequences. The Company has not provided for approximately $1.0 million of foreign deferred taxes for the $103.1 million of the foreign cash earnings that is indefinitely reinvested outside the U.S. The Company reassesses its intention to remit or permanently reinvest these cash earnings each reporting period; any required adjustment to the income tax provision would be reflected in the period that the Company changes this intention.
NOTE 4—BUSINESS COMBINATION
Through the Combination, ANGI acquired 100% of the common stock of Angie's List on September 29, 2017 for a total purchase price valued at $781.4 million.
The purchase price of $781.4 million was determined based on the sum of (i) the fair value of the 61.3 million shares of Angie's List common stock outstanding immediately prior to the Combination based on the closing stock price of Angie's List common stock on the NASDAQ on September 29, 2017 of $12.46 per share; (ii) the cash consideration of$1.9 million paid to holders of Angie's List common stock who elected to receive $8.50 in cash per share; and (iii) the fair value of vested equity awards (including the pro rata portion of unvested awards attributable to pre-combination services) outstanding under Angie's List stock plans on September 29, 2017. Each stock option to purchase shares of Angie's List common stock that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an option to purchase (i) that number of Class A shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List option immediately prior to the effective time of the Combination, (ii) at a per-share exercise price equal to the exercise price per share of Angie's List common stock at which such Angie's List option was exercisable immediately prior to the effective time of the Combination. Each award of Angie's List restricted stock units that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an ANGI Homeservices restricted stock unit award with respect to a number of Class A shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List restricted stock unit award immediately prior to the effective time of the Combination.
The table below summarizes the purchase price:
|
| | | |
| | Angie's List |
| | (In thousands) |
| Class A common stock | $ | 763,684 |
|
| Cash consideration for holders who elected to receive $8.50 in cash per share of Angie's List common stock | 1,913 |
|
| Fair value of vested and pro rata portion of unvested stock options attributable to pre-combination services | 11,749 |
|
| Fair value of the pro rata portion of unvested restricted stock units attributable to pre-combination services | 4,038 |
|
| Total purchase price | $ | 781,384 |
|
The financial results of Angie's List are included in the Company's consolidated financial statements, within the ANGI Homeservices segment, beginning September 29, 2017. For the year ended December 31, 2017, the Company included $58.9 million of revenue and $21.8 million of net loss in its consolidated statement of operations related to Angie's List. The net loss of Angie's List reflects $28.7 million in stock-based compensation expense related to (i) the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination and (ii) the expense related to previously issued Angie's List equity awards, severance and retention costs of $19.8 million related to the Combination and a reduction in revenue of $7.8 million due to the write-off of deferred revenue related to the Combination.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:combination:
| | | | | Angie's List |
| | (In thousands) | (In thousands) |
| Cash and cash equivalents | $ | 4,626 |
| $ | 44,270 |
|
| Other current assets | 4,460 |
| 11,280 |
|
| Computer and other equipment | 2,990 |
| |
| Property and equipment | | 16,341 |
|
| Goodwill | 488,644 |
| 543,674 |
|
| Intangible assets | 84,100 |
| 317,300 |
|
| Other non-current assets | 1,073 |
| |
| Total assets | 585,893 |
| 932,865 |
|
| Current liabilities | (6,418 | ) | |
| Deferred revenue | | (32,595 | ) |
| Other current liabilities | | (46,150 | ) |
| Long-term debt—related party | | (61,498 | ) |
| Deferred income taxes | | (9,833 | ) |
| Other long-term liabilities | (5,325 | ) | (1,405 | ) |
| Net assets acquired | $ | 574,150 |
| $ | 781,384 |
|
The purchase price was based on the expected financial performance of PlentyOfFish,Angie's List, not on the value of the net identifiable assets at the time of acquisition, whichcombination. This resulted in a significant portion of the purchase price being attributed to goodwill. The expected financial performance of PlentyOfFish reflects that itgoodwill because Angie's List is complementary and synergistic to the existing Match Group dating businesses.other North America businesses of ANGI Homeservices.
IntangibleThe fair values of the identifiable intangible assets acquired at the date of combination are as follows:
|
| | | | | |
| | (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 |
| | |
|
| | | | | |
| | Angie's List |
| | (In thousands) | | Weighted-Average Useful Life (Years) |
| Indefinite-lived trade name and trademarks | $ | 137,000 |
| | Indefinite |
| Service professionals | 90,500 |
| | 3 |
| Developed technology | 63,900 |
| | 6 |
| Memberships | 15,900 |
| | 3 |
| User base | 10,000 |
| | 1 |
| Total identifiable intangible assets acquired | $ | 317,300 |
| | |
PlentyOfFish's otherOther current assets, property and equipment, other non-current assets, current liabilities and other long-term liabilities of Angie's List were reviewed and adjusted to their fair values at the date of acquisition,combination, as necessary. The fair valuesvalue of trade names, customer relationships and the non-compete agreement weredeferred revenue was determined using variationsan income approach that utilized a cost to fulfill analysis. The fair value of the trade name and trademarks was determined using an income approach; specifically, in respective order,approach that utilized the relief from royalty excess earnings and with or without methodologies.methodology. The fair values of new registrantsdeveloped technology and developed technologyuser base were determined using a cost approach that utilized the cost to replace methodology. The fair values of the service professionals and memberships were determined using an income approach that utilized the excess earnings methodology. The valuations of thedeferred revenue and intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows, cost and profit margins related to deferred revenue and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
Unaudited Pro formaForma Financial Information
The unaudited pro forma financial information in the table below presents the combined results of the Company and PlentyOfFishAngie's List as if the acquisition of PlentyOfFishCombination had occurred on January 1, 2014.2016. The unaudited pro forma financial information includes
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the acquisitionCombination actually occurred on January 1, 2014.2016. For the years ended December 31, 2015 and 2014, pro forma adjustments reflected below include increases of $1.4 million and $14.6 million, respectively, in amortization of intangible assets. The pro forma adjustments reflected below for the year ended December 31, 2014 also2017, pro forma adjustments include (i) reductions in stock-based compensation expense of $77.1 million and transaction related costs of $34.1 million because they are one-time in nature and will not have a continuing impact on operations; and (ii) an increase in amortization of intangibles of $31.9 million. The stock-based compensation expense is related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination. The transaction related costs include severance and retention costs of $19.8 million related to the Combination. For the year ended December 31, 2016, pro forma adjustments include a reduction in revenue of $5.1$34.1 million due to the write-off of deferred revenue at the assumed date of acquisition.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
acquisition as well as increases in stock-based compensation expense of $81.4 million and amortization of intangibles of $56.1 million.
|
| | | | | | | |
| | Years Ended December 31, |
| | 2015 | | 2014 |
| | (In thousands, except per share data) |
| Revenue | $ | 3,309,287 |
| | $ | 3,157,893 |
|
| Net earnings attributable to IAC shareholders | $ | 155,599 |
| | $ | 413,299 |
|
| Basic earnings per share attributable to IAC shareholders | $ | 1.88 |
| | $ | 4.96 |
|
| Diluted earnings per share attributable to IAC shareholders | $ | 1.76 |
| | $ | 4.67 |
|
|
| | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 |
| | (In thousands, except per share data) |
| Revenue | $ | 3,529,600 |
| | $ | 3,429,105 |
|
| Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders | $ | 364,496 |
| | $ | (143,133 | ) |
| Basic earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders | $ | 4.55 |
| | $ | (1.79 | ) |
| Diluted earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders | $ | 4.27 |
| | $ | (1.79 | ) |
NOTE 5—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Goodwill | $ | 1,924,052 |
| | $ | 2,245,364 |
| $ | 2,726,859 |
| | $ | 2,559,066 |
|
| Intangible assets with indefinite lives | 320,645 |
| | 380,137 |
| 458,104 |
| | 459,143 |
|
| Intangible assets with definite lives, net | 34,806 |
| | 60,691 |
| |
| Intangible assets with definite lives, net of accumulated amortization | | 173,318 |
| | 204,594 |
|
| Total goodwill and intangible assets, net | $ | 2,279,503 |
| | $ | 2,686,192 |
| $ | 3,358,281 |
| | $ | 3,222,803 |
|
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, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
December 31, 2015 | | Additions | | (Deductions) | | Impairment | | Foreign
Exchange
Translation | | Balance at
December 31, 2016 |
| | (In thousands) |
| Match Group | $ | 1,293,109 |
| | $ | 603 |
| | $ | (3,063 | ) | | $ | — |
| | $ | (9,689 | ) | | $ | 1,280,960 |
|
| HomeAdvisor | 150,251 |
| | 21,985 |
| | — |
| | — |
| | (1,625 | ) | | 170,611 |
|
| Video | 15,590 |
| | 9,649 |
| | — |
| | — |
| | — |
| | 25,239 |
|
| Applications | 447,242 |
| | — |
| | — |
| | — |
| | — |
| | 447,242 |
|
| Publishing | 277,192 |
| | — |
| | (1,968 | ) | | (275,367 | ) | | 143 |
| | — |
|
| Other | 61,980 |
| | — |
| | (62,780 | ) | | — |
| | 800 |
| | — |
|
| Total | $ | 2,245,364 |
| | $ | 32,237 |
| | $ | (67,811 | ) | | $ | (275,367 | ) | | $ | (10,371 | ) | | $ | 1,924,052 |
|
The additions primarily relate to the acquisitions of MyHammer Holding AG (included in the HomeAdvisor segment) and VHX (included in the Video segment). The deductions primarily relate to the sales of PriceRunner and ShoeBuy (both included in the Other segment). See "Note 2—Summary of Significant Accounting Policies" for information on the 2016 impairment charge at Publishing.
Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2015:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| Video | 15,590 |
| | — |
| | — |
| | — |
| | — |
| | 15,590 |
|
| Applications | — |
| | — |
| | — |
| | — |
| | 447,242 |
| | 447,242 |
|
| Publishing | — |
| | 3,504 |
| | — |
| | 963 |
| | 272,725 |
| | 277,192 |
|
| Other | 21,719 |
| | — |
| | (14,056 | ) | | (758 | ) | | 55,075 |
| | 61,980 |
|
| Total | $ | 1,754,926 |
| | $ | 552,864 |
| | $ | (14,056 | ) | | $ | (48,370 | ) | | $ | — |
| | $ | 2,245,364 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
December 31, 2017 | | Additions | | (Deductions) | | Transfers In/(Out) | | Foreign
Exchange
Translation | | Balance at
December 31, 2018 |
| | (In thousands) |
| Match Group | $ | 1,247,899 |
| | $ | 11,187 |
| | $ | — |
| | $ | — |
| | $ | (14,073 | ) | | $ | 1,245,013 |
|
| ANGI Homeservices | 768,317 |
| | 142,768 |
| | (14,373 | ) | | — |
| | (3,912 | ) | | 892,800 |
|
| Vimeo | 77,303 |
| | — |
| | (151 | ) | | — |
| | — |
| | 77,152 |
|
| Applications: | | | | | | | | | | | |
| Desktop | 265,146 |
| | — |
| | — |
| | — |
| | — |
| | 265,146 |
|
| Mosaic Group | 182,096 |
| | 50,784 |
| | — |
| | 7,323 |
| | (457 | ) | | 239,746 |
|
| Total Applications | 447,242 |
| | 50,784 |
| | — |
| | 7,323 |
| | (457 | ) | | 504,892 |
|
| Emerging & Other | 18,305 |
| | 3,684 |
| | (7,664 | ) | | (7,323 | ) | | — |
| | 7,002 |
|
| Total | $ | 2,559,066 |
| | $ | 208,423 |
| | $ | (22,188 | ) | | $ | — |
| | $ | (18,442 | ) | | $ | 2,726,859 |
|
________________________
| |
(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: Applications, Publishing 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 was 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 additionsAdditions primarily relate to Match Group'sthe acquisitions of PlentyOfFishHandy (included in the ANGI Homeservices segment), TelTech and Eureka. See "Note 2—SummaryiTranslate (included in the Applications segment), Hinge (included in the Match Group segment), and BlueCrew (included in the Emerging & Other segment). Deductions relate to the sales of Significant Accounting Policies" for information onFelix (included in the 2015 impairment charge at ShoeBuy.ANGI Homeservices segment) and Electus (included in the Emerging & Other segment).
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, 20152017:
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at
December 31, 2016 | | Additions | | (Deductions) | | Foreign
Exchange
Translation | | Balance at
December 31, 2017 |
| | (In thousands) |
| Match Group | $ | 1,206,538 |
| | $ | 255 |
| | $ | — |
| | $ | 41,106 |
| | $ | 1,247,899 |
|
| ANGI Homeservices | 170,611 |
| | 590,772 |
| | — |
| | 6,934 |
| | 768,317 |
|
| Vimeo | 9,649 |
| | 67,654 |
| | — |
| | — |
| | 77,303 |
|
| Applications: | | | | | | | | | |
| Desktop | 265,146 |
| | — |
| | — |
| | — |
| | 265,146 |
|
| Mosaic Group | 182,096 |
| | — |
| | — |
| | — |
| | 182,096 |
|
| Total Applications | 447,242 |
| | — |
| | — |
| | — |
| | 447,242 |
|
| Emerging & Other | 90,012 |
| | 2,715 |
| | (74,430 | ) | | 8 |
| | 18,305 |
|
| Total | $ | 1,924,052 |
| | $ | 661,396 |
| | $ | (74,430 | ) | | $ | 48,048 |
| | $ | 2,559,066 |
|
Additions primarily relate to the acquisitions of Angie's List, MyBuilder and HomeStars (included in the ANGI Homeservices segment), and Livestream (included in the Vimeo segment). Deductions relate to the sale of The Princeton Review (included in the Emerging & Other segment).
Prior to the fourth quarter of 2018, IAC Publishing was a reportable segment consisting of one operating segment and one reporting unit. In the fourth quarter of 2018, IAC Publishing was split into the Dotdash and the Emerging & Other segments (related to the remaining businesses previously included in the IAC Publishing segment). The accumulated goodwill balance includes accumulated impairment losses of $529.1 million, $322.6 million and $65.2 million, which were re-allocated from the former Search & Applications segment,IAC Publishing was allocated to Applications, Publishing and PriceRunner, respectively,these businesses based onupon their relative fair values as of October 1, 2015 following the change in reportable segments that occurred during the fourth quarter of 2015.2018. The December 31, 2018 and 2017 goodwill balance at December 31, 2015 also includesreflects accumulated impairment losses of $42.1$529.1 million, $399.7 million, $198.3 million and $11.6 million at ShoeBuy (includedApplications, the businesses previously included in the Other segment) and Connected Ventures (included in the Video segment), respectively.IAC Publishing segment, excluding
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dotdash (included in the Emerging & Other segment), Dotdash and College Humor Media (included in the Emerging & 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. At December 31, 20162018 and 2015,2017, intangible assets with definite lives are as follows:
| | | | December 31, 2016 | December 31, 2018 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) |
| | (In thousands) | | | (In thousands) | | |
| Technology | | $ | 143,303 |
| | $ | (53,199 | ) | | $ | 90,104 |
| | 4.7 |
| Service professional and contractor relationships | | 99,528 |
| | (44,674 | ) | | 54,854 |
| | 2.9 |
| Customer lists and user base | | 30,099 |
| | (15,126 | ) | | 14,973 |
| | 2.9 |
| Memberships | | 15,900 |
| | (6,640 | ) | | 9,260 |
| | 3.0 |
| Trade names | $ | 63,855 |
| | $ | (52,927 | ) | | $ | 10,928 |
| | 1.8 | 12,393 |
| | (9,393 | ) | | 3,000 |
| | 3.3 |
| Technology | 38,602 |
| | (27,667 | ) | | 10,935 |
| | 3.4 | |
| Content | 14,802 |
| | (8,965 | ) | | 5,837 |
| | 4.3 | |
| Customer lists | 12,485 |
| | (9,997 | ) | | 2,488 |
| | 3.7 | |
| Advertiser and supplier relationships and other | 7,230 |
| | (2,612 | ) | | 4,618 |
| | 4.5 | |
| Other | | 8,500 |
| | (7,373 | ) | | 1,127 |
| | 4.8 |
| Total | $ | 136,974 |
| | $ | (102,168 | ) | | $ | 34,806 |
| | 2.8 | $ | 309,723 |
| | $ | (136,405 | ) | | $ | 173,318 |
| | 3.8 |
| | | | December 31, 2015 | December 31, 2017 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) |
| | (In thousands) | | | (In thousands) | | |
| Technology | | $ | 115,200 |
| | $ | (37,357 | ) | | $ | 77,843 |
| | 4.8 |
| Service professional and contractor relationships | | 99,497 |
| | (11,452 | ) | | 88,045 |
| | 3.0 |
| Customer lists and user base | | 23,468 |
| | (5,401 | ) | | 18,067 |
| | 2.2 |
| Memberships | | 15,900 |
| | (1,340 | ) | | 14,560 |
| | 3.0 |
| Trade names | $ | 32,123 |
| | $ | (26,268 | ) | | $ | 5,855 |
| | 2.5 | 16,986 |
| | (13,634 | ) | | 3,352 |
| | 2.6 |
| Technology | 55,487 |
| | (37,012 | ) | | 18,475 |
| | 3.2 | |
| Content | 62,082 |
| | (48,937 | ) | | 13,145 |
| | 4.1 | |
| Customer lists | 28,836 |
| | (13,078 | ) | | 15,758 |
| | 2.1 | |
| Advertiser and supplier relationships and other | 15,709 |
| | (8,251 | ) | | 7,458 |
| | 4.2 | |
| Other | | 8,500 |
| | (5,773 | ) | | 2,727 |
| | 4.8 |
| Total | $ | 194,237 |
| | $ | (133,546 | ) | | $ | 60,691 |
| | 3.3 | $ | 279,551 |
| | $ | (74,957 | ) | | $ | 204,594 |
| | 3.7 |
At December 31, 2016,2018, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
| | | Years Ending December 31, | (In thousands) | (In thousands) |
| 2017 | $ | 23,815 |
| |
| 2018 | 6,922 |
| |
| 2019 | 2,866 |
| $ | 71,155 |
|
| 2020 | 1,203 |
| 51,916 |
|
| 2021 | | 19,433 |
|
| 2022 | | 16,310 |
|
| 2023 | | 10,239 |
|
| Thereafter | | 4,265 |
|
| Total | $ | 34,806 |
| $ | 173,318 |
|
NOTE 6—MARKETABLE SECURITIES
At December 31, 2016, current available-for-sale marketable securities are as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—FINANCIAL INSTRUMENTS
Marketable Securities
At December 31, 2018 and 2017, the fair value of marketable securities are as follows:
|
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (In thousands) |
| Commercial paper | $ | 49,797 |
| | $ | — |
| | $ | — |
| | $ | 49,797 |
|
| Treasury discount notes | 34,978 |
| | — |
| | (4 | ) | | 34,974 |
|
| Corporate debt securities | 4,575 |
| | 2 |
| | (6 | ) | | 4,571 |
|
| Total debt securities | 89,350 |
| | 2 |
| | (10 | ) | | 89,342 |
|
| Total marketable securities | $ | 89,350 |
| | $ | 2 |
| | $ | (10 | ) | | $ | 89,342 |
|
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| Available-for-sale marketable debt securities | $ | 123,246 |
| | $ | 4,995 |
|
| Marketable equity security | 419 |
| | — |
|
| Total marketable securities | $ | 123,665 |
| | $ | 4,995 |
|
At December 31, 2018, current available-for-sale marketable debt securities are as follows:
|
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (In thousands) |
| Treasury discount notes | $ | 112,291 |
| | $ | 3 |
| | $ | (3 | ) | | $ | 112,291 |
|
| Commercial paper | 10,955 |
| | — |
| | — |
| | 10,955 |
|
| Total available-for-sale marketable debt securities | $ | 123,246 |
| | $ | 3 |
| | $ | (3 | ) | | $ | 123,246 |
|
The contractual maturities of debt securities classified as current available-for-sale at December 31, 20162018 are within one year.
The aggregate fair value of available-for-sale marketable debt securities with unrealized losses is $37.0 million as of December 31, 2016. There are no investments in current available-for-sale marketable debt securities that have been in a continuous unrealized loss position for longer than twelve months as of December 31, 2016. The 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 December 31, 2016, and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized costs bases, which may be maturity.2018.
At December 31, 2015,2017, current available-for-sale marketable debt 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 December 31, 2015, and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized costs bases, which may be maturity. |
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (In thousands) |
| Commercial paper | $ | 4,995 |
| | $ | — |
| | $ | — |
| | $ | 4,995 |
|
| Total available-for-sale marketable debt securities | $ | 4,995 |
| | $ | — |
| | $ | — |
| | $ | 4,995 |
|
The following table presents the proceeds from maturities and sales of current and non-current available-for-sale marketable debt securities and the related gross realized gains:
| | | | December 31, | December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Proceeds from maturities and sales of available-for-sale marketable securities | $ | 279,485 |
| | $ | 218,976 |
| | $ | 25,223 |
| |
| Proceeds from maturities and sales of available-for-sale marketable debt securities | | $ | 333,600 |
| | $ | 114,350 |
| | $ | 279,485 |
|
| Gross realized gains | 3,556 |
| | 443 |
| | 3,362 |
| — |
| | — |
| | 3,556 |
|
Gross realized gains from the maturities and sales of available-for-sale marketable debt securities for the year ended December 31, 2016 are included in "Other income (expense), net" in the accompanying consolidated statement of operations.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no gross realized losses from the maturities and sales of available-for-sale marketable debt securities for the years ended December 31, 2016, 20152018, 2017, and 2014. However,2016.
Long-term investments
Long-term investments consist of:
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| Equity securities without readily determinable fair values | $ | 235,055 |
| | $ | — |
|
| Equity method investments | — |
| | 1,559 |
|
| Cost method investments | — |
| | 63,418 |
|
| Total long-term investments | $ | 235,055 |
| | $ | 64,977 |
|
Equity securities without readily determinable fair values
The following table presents a summary of realized and unrealized gains and losses recorded in other income (expense), net, as adjustments to the carrying value of equity securities without readily determinable fair values held as of December 31, 2018. The gross unrealized gains principally relate to the Company's remaining investments in an investee following the sale of a portion of the Company's investment during the second quarter of 2015,2018.
|
| | | | |
| | | Year Ended December 31, 2018 |
| | | (In thousands) |
| Upward adjustments (gross unrealized gains) | | $ | 128,986 |
|
| Downward adjustments including impairments (gross unrealized losses) | | (4,931 | ) |
| Total | | $ | 124,055 |
|
Realized and unrealized gains and losses for the Company's marketable equity security and investments without readily determinable fair values for the year ended December 31, 2018 are as follows:
|
| | | | |
| | | Year Ended December 31, 2018 |
| | | (In thousands) |
| Realized gains, net, for equity securities sold | | $ | 27,874 |
|
| Unrealized gains, net, on equity securities held | | 124,170 |
|
| Total gains recognized, net, in other income (expense), net | | $ | 152,044 |
|
Equity method investments
In 2018 and 2017, the Company recognized $0.3recorded other-than-temporary impairment charges on certain of its investments of $0.6 million and $2.7 million, respectively. These charges are included in losses that were deemed to be other-than-temporary related to various corporate debt securities that were expected to be sold by"Other income (expense), net" in the Company, in part, to fund its cash needs related to Match Group's acquisitionaccompanying consolidated statement of PlentyOfFish for $575 million.operations.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 income (expense), net" in the accompanying consolidated statement of operations.
NOTE 7—LONG-TERM INVESTMENTS
Long-term investments consist of:
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | (In thousands) |
| Cost method investments | $ | 116,133 |
| | $ | 114,532 |
|
| Equity method investments | 6,677 |
| | 11,262 |
|
| Marketable equity security | — |
| | 7,542 |
|
| Auction rate security | — |
| | 4,050 |
|
| Total long-term investments | $ | 122,810 |
| | $ | 137,386 |
|
Cost method investments (prior to the adoption of ASU No. 2016-01)
In 2016, 20152017 and 2014,2016, the Company recorded $10.0 million, $4.5$9.5 million and $66.6$10.0 million, respectively, of other-than-temporary impairment charges for certain cost methodof its investments as a result of our assessment of the near-term prospects and financial condition of the investees. These charges are included in "Other income (expense), net" in the accompanying consolidated statement of operations.
The Company's largestOn October 23, 2017, Match Group sold a cost method investment through Match Group, is a 21% interest in the voting common stockfor net proceeds of Zhenai Inc. ("Zhenai"), a leading provider of online dating and matchmaking services in China. However, given that our interest relative to other shareholders is not significant, we do not have the ability to exercise significant influence over the operating and financial matters of Zhenai and this investment is accounted for as a cost method investment.
Equity method investments
In 2016 and 2014, the Company recorded other-than-temporary impairment charges$60.2 million. The gain on certain of its investments of $0.6 million and $4.2 million, respectively. The other-than-temporary impairment charge recorded in 2014 related to one of its investments following the sale of a majority of the investee's assets. These charges are$9.1 million is included in "Other income (expense), net" in the accompanying consolidated statement of operations.
Marketable equity security
The cost basis of the Company's long-term marketable equity security at December 31, 2015 was $5.0 million with a gross unrealized gain of $2.6 million. The gross unrealized gain 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. During the third quarter of 2016, the security had been sold.
Auction rate security
See "Note 8—Fair Value Measurements and Financial Instruments" for information regarding the auction rate security.
NOTE 8—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | 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 | $ | 880,815 |
| | $ | — |
| | $ | — |
| | $ | 880,815 |
|
| Treasury discount notes | — |
| | 561,733 |
| | — |
| | 561,733 |
|
| Commercial paper | — |
| | 162,417 |
| | — |
| | 162,417 |
|
| Time deposits | — |
| | 90,036 |
| | — |
| | 90,036 |
|
| Marketable securities: | | | | | | | |
| Treasury discount notes | — |
| | 112,291 |
| | — |
| | 112,291 |
|
| Commercial paper | — |
| | 10,955 |
| | — |
| | 10,955 |
|
| Marketable equity security | 419 |
| | — |
| | — |
| | 419 |
|
| Total | $ | 881,234 |
| | $ | 937,432 |
| | $ | — |
| | $ | 1,818,666 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Contingent consideration arrangements | $ | — |
| | $ | — |
| | $ | (28,631 | ) | | $ | (28,631 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| | (In thousands) |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 667,662 |
| | $ | — |
| | $ | — |
| | $ | 667,662 |
|
| Time deposits | — |
| | 79,000 |
| | — |
| | 79,000 |
|
| Treasury discount notes | 24,991 |
| | — |
| | — |
| | 24,991 |
|
| Commercial paper | — |
| | 123,640 |
| | — |
| | 123,640 |
|
| Marketable securities: | | | | | | | |
| Commercial paper | — |
| | 49,797 |
| | — |
| | 49,797 |
|
| Treasury discount notes | 34,974 |
| | — |
| | — |
| | 34,974 |
|
| Corporate debt securities | — |
| | 4,571 |
| | — |
| | 4,571 |
|
| Total | $ | 727,627 |
| | $ | 257,008 |
| | $ | — |
| | $ | 984,635 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Contingent consideration arrangements | $ | — |
| | $ | — |
| | $ | (33,871 | ) | | $ | (33,871 | ) |
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total
Fair Value
Measurements |
| | (In thousands) |
| Assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 780,425 |
| | $ | — |
| | $ | — |
| | $ | 780,425 |
|
| Commercial paper | — |
| | 215,325 |
| | — |
| | 215,325 |
|
| Treasury discount notes | — |
| | 100,457 |
| | — |
| | 100,457 |
|
| Time deposits | — |
| | 60,000 |
| | — |
| | 60,000 |
|
| Certificates of deposit | — |
| | 6,195 |
| | — |
| | 6,195 |
|
| Marketable securities: | | | | | | | |
| Commercial paper | — |
| | 4,995 |
| | — |
| | 4,995 |
|
| Total | $ | 780,425 |
| | $ | 386,972 |
| | $ | — |
| | $ | 1,167,397 |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Contingent consideration arrangements | $ | — |
| | $ | — |
| | $ | (2,647 | ) | | $ | (2,647 | ) |
The following table presents the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3): are its contingent consideration arrangements.
| | | | For the Year Ended | Contingent Consideration Arrangements |
| | December 31, 2016 | | December 31, 2015 | Years Ended December 31, |
| | Auction Rate Security | | Contingent Consideration Arrangements | | Auction Rate Security | | Contingent Consideration Arrangements | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Balance at January 1 | $ | 4,050 |
| | $ | (33,873 | ) | | $ | 6,070 |
| | $ | (30,140 | ) | $ | (2,647 | ) | | $ | (33,871 | ) |
| Total net gains (losses): | | | | | | | | |
| Total net (losses) gains: | | | | |
| Included in earnings: | | | | | | | | | | |
| Fair value adjustments | — |
| | (2,555 | ) | | — |
| | 15,461 |
| (1,456 | ) | | (5,801 | ) |
| Foreign currency exchange gains | — |
| | — |
| | — |
| | 626 |
| |
| Included in other comprehensive income (loss) | 5,950 |
| | (1,571 | ) | | (2,020 | ) | | 1,872 |
| 45 |
| | (1,404 | ) |
| Fair value at date of acquisition | — |
| | (185 | ) | | — |
| | (27,442 | ) | (25,521 | ) | | — |
|
| Settlements | — |
| | 2,180 |
| | — |
| | 5,750 |
| 948 |
| | 38,429 |
|
| Proceeds from sale | (10,000 | ) | | — |
| | — |
| | — |
| |
| Other | — |
| | 2,133 |
| | — |
| | — |
| |
| Balance at December 31 | $ | — |
| | $ | (33,871 | ) | | $ | 4,050 |
| | $ | (33,873 | ) | $ | (28,631 | ) | | $ | (2,647 | ) |
Contingent consideration arrangements
As ofAt December 31, 2016, there are seven2018, the Company has two contingent consideration arrangements outstanding related to business acquisitions. TheOne arrangement has a $2.0 million maximum contingent payments related to these seven arrangements are $132.8 millionpayment that has been earned and will be paid by the Companyin the first quarter of 2019. The second arrangement has a total maximum contingent payment of $45.0 million. At December 31, 2018, the gross fair value of these arrangements at December 31, 2016this arrangement, before unamortized discount, is $33.9$44.0 million.
The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company generally determines the fair value of the contingent consideration arrangements by using probability-weighted analyses to determine the amounts of the gross liability, and, ifbecause the arrangement isarrangements were initially long-term in nature, applying a discount rate that appropriately captures the risks associated with the obligation to determine the net amount reflected in the consolidated financial statements. The numberfair values of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared for longer duration and more complex arrangements.contingent consideration arrangements at December 31, 2018 reflect
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
discount rates ranging from 12% to 25%. The fair values of the contingent consideration arrangements at December 31, 2016 and 20152017 reflect discount rates ranging fromof 12% to 25%.
The fair valuesvalue of the contingent consideration arrangements areis 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"General and administrative expense”expense" in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at December 31, 20162018 and 20152017 includes a current portion of $33.4$2.0 million and $2.6$0.6 million, respectively, and non-current portion of $0.4$26.6 million and $31.2$2.0 million respectively,at December 31, 2018 and 2017, which are included in “Accrued"Accrued expenses and other current liabilities”liabilities" and “Other"Other long-term liabilities,”" respectively, in the accompanying consolidated balance sheet.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| | (In thousands) |
| Current portion of long-term debt | $ | (13,750 | ) | | $ | (12,753 | ) | | $ | (13,750 | ) | | $ | (13,802 | ) |
Long-term debt, net(a) | (2,245,548 | ) | | (2,460,204 | ) | | (1,979,469 | ) | | (2,168,108 | ) |
_________________
| |
(a) | At December 31, 2018 and 2017, the carrying value of long-term debt, net includes unamortized original issue discount and debt issuance costs of $88.9 million and $109.1 million, respectively. |
Excluding the MTCH Credit Facility, the fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, which are Level 2 inputs. The Company considers the outstanding borrowings under the MTCH Credit Facility, which has a variable interest rate, to have a fair value equal to its carrying value.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| | (In thousands) |
| Current portion of long-term debt | $ | (20,000 | ) | | $ | (20,311 | ) | | $ | (40,000 | ) | | $ | (39,850 | ) |
| Long-term debt, net of current portion | (1,582,484 | ) | | (1,657,861 | ) | | (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 taking into consideration other factors such as credit quality and maturity, which are Level 3 inputs.
NOTE 9—7—LONG-TERM DEBT
Long-term debt consists of:
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | (In thousands) |
| Match Group Debt: | | | |
| 6.75% Senior Notes due December 15, 2022 (the "2015 Match Group Senior Notes"); interest payable each June 15 and December 15, which commenced on June 15, 2016 | $ | 445,172 |
| | $ | 445,172 |
|
| 6.375% Senior Notes due June 1, 2024 (the "2016 Match Group Senior Notes"); interest payable each June 1 and December 1, which commenced on December 1, 2016 | 400,000 |
| | — |
|
Match Group Term Loan due November 16, 2022 (a) | 350,000 |
| | 800,000 |
|
| Total Match Group long-term debt | 1,195,172 |
| | 1,245,172 |
|
| Less: Current maturities of Match Group long-term debt | — |
| | 40,000 |
|
| Less: Unamortized original issue discount and original issue premium, net | 5,245 |
| | 11,691 |
|
| Less: Unamortized debt issuance costs | 13,434 |
| | 16,610 |
|
| Total Match Group debt, net of current maturities | 1,176,493 |
| | 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 on May 30, 2014 | 390,214 |
| | 500,000 |
|
| 4.75% Senior Notes due December 15, 2022 (the "2012 Senior Notes"); interest payable each June 15 and December 15, which commenced on June 15, 2013 | 38,109 |
| | 54,732 |
|
| Total IAC long-term debt | 428,323 |
| | 554,732 |
|
| Less: Current portion of IAC long-term debt | 20,000 |
| | — |
|
| Less: Unamortized debt issuance costs | 2,332 |
| | 4,649 |
|
| Total IAC debt, net of current portion | 405,991 |
| | 550,083 |
|
| | | | |
| Total long-term debt, net of current portion | $ | 1,582,484 |
| | $ | 1,726,954 |
|
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| MTCH Debt: | | | |
| MTCH Term Loan due November 16, 2022 | $ | 425,000 |
| | $ | 425,000 |
|
| MTCH Credit Facility due December 7, 2023 | 260,000 |
| | — |
|
| 6.375% Senior Notes due June 1, 2024 (the "6.375% MTCH Senior Notes"); interest payable each June 1 and December 1 | 400,000 |
| | 400,000 |
|
| 5.00% Senior Notes due December 15, 2027 (the "5.00% MTCH Senior Notes"); interest payable each June 15 and December 15 | 450,000 |
| | 450,000 |
|
| Total MTCH long-term debt | 1,535,000 |
| | 1,275,000 |
|
| Less: unamortized original issue discount | 7,352 |
| | 8,668 |
|
| Less: unamortized debt issuance costs | 11,737 |
| | 13,636 |
|
| Total MTCH debt, net | 1,515,911 |
| | 1,252,696 |
|
| | | | |
| ANGI Debt: | | | |
| ANGI Term Loan due November 5, 2023 | 261,250 |
| | 275,000 |
|
| Less: current portion of ANGI Term Loan | 13,750 |
| | 13,750 |
|
| Less: unamortized debt issuance costs | 2,529 |
| | 2,938 |
|
| Total ANGI debt, net | 244,971 |
| | 258,312 |
|
| | | | |
| IAC Debt: | | | |
| 0.875% Exchangeable Senior Notes due October 1, 2022 (the "Exchangeable Notes"); interest payable each April 1 and October 1 | 517,500 |
| | 517,500 |
|
| 4.75% Senior Notes due December 15, 2022 (the "4.75% Senior Notes"); interest payable each June 15 and December 15 | 34,489 |
| | 34,859 |
|
| Total IAC long-term debt | 551,989 |
| | 552,359 |
|
| Less: unamortized original issue discount | 54,025 |
| | 67,158 |
|
| Less: unamortized debt issuance costs | 13,298 |
| | 16,740 |
|
| Total IAC debt, net | 484,666 |
| | 468,461 |
|
| | | | |
| Total long-term debt, net | $ | 2,245,548 |
| | $ | 1,979,469 |
|
________________________
| |
(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.
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Match GroupMTCH Senior Notes:
The 2016 Match Group6.375% MTCH Senior Notes were issued on June 1, 2016. The proceeds of $400 million were used to prepay a portion of indebtedness outstanding under the Match GroupMTCH 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.premium set forth in the indenture governing the notes. 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 | % |
On December 4, 2017, MTCH issued $450 million aggregate principal amount of its 5.00% Senior Notes. The 2015 Match Groupproceeds from these notes, along with cash on hand, were used to redeem the $445.2 million outstanding balance of the 6.75% MTCH Senior Notes, which were issueddue on November 16, 2015, in exchange for a portion ofDecember 15, 2022, and pay the 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 guarantee any debt of IAC, or are subject to any of the covenants related to such debt.
call premium. At any time prior to December 15, 2017,2022, the 2015 Match Group5.00% MTCH Senior Notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium.premium set forth in the indenture governing the notes. Thereafter, the 2015 Match Group Senior Notesthese 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 December 15 of the years indicated below:
|
| | | |
| Year | | Percentage |
| 2017 | | 102.375 | % |
| 2018 | | 101.583 | % |
| 2019 | | 100.792 | % |
| 2020 and thereafter | | 100.000 | % |
|
| | |
| Year | Percentage |
| 2022 | 102.500 | % |
| 2023 | 101.667 | % |
| 2024 | 100.833 | % |
| 2025 and thereafter | 100.000 | % |
The indentures governing the 20166.375% and 2015 Match Group5.00% MTCH Senior Notes (i) contain covenants that would limit Match Group'sMTCH's ability to pay dividends, or to make distributions andor repurchase or redeem Match GroupMTCH stock in the event a default has occurred or Match Group'sMTCH's consolidated leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0.1.0 and (ii) are ranked equally with each other. At December 31, 2016,2018, there were no limitations pursuant thereto. There are additional covenants that limit Match Group'sMTCH's ability and the ability of its subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event Match GroupMTCH is not in compliance with the leverage ratiocertain ratios set forth in the indenture,indentures, and (ii) incur liens, enter into agreements restricting Match GroupMTCH subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of their assets.
Match GroupMTCH Term Loan and Match GroupMTCH Credit Facility:
On November 16, 2015, under a credit agreement (the "Match Group Credit Agreement"), Match Group borrowed $800 million inAt both December 31, 2018 and 2017, the form of a term loan (the "Match Group Term Loan"). On March 31, 2016, Match Group made a $10 million principal paymentoutstanding balance on the Match GroupMTCH Term Loan. On June 1, 2016, the $400 million in proceeds from the 2016 Match Group Senior Notes, described above, were used to prepay a portion of the Match GroupLoan was $425 million. The MTCH Term Loan. OnLoan bears interest at LIBOR plus 2.50% and was 5.09% and 3.85% at December 8, 2016, Match Group made an additional $40 million principal payment on the Match Group Term Loan. In addition, the remaining outstanding balance of $350 million, which is due at maturity, was repriced.31, 2018 and 2017, respectively. The Match GroupMTCH Term Loan provides for additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, if any, is governed by the secured net leverage ratio contained in the credit agreement. Interest payments are due at least quarterly through the term of the loan.
On December 7, 2018, the MTCH $500 million revolving credit facility (the "MTCH Credit Facility") was amended and restated, and is due on December 7, 2023. At December 31, 2018, the outstanding borrowings under the MTCH Credit Facility were $260.0 million which bear interest at LIBOR plus 1.50%, or approximately 4.00%. At December 31, 2017, there were no
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by the secured net leverage ratio contained in the Match Group Credit Agreement. The Match Group Term Loan bears interest, at Match Group's option, at a base rate or LIBOR, plus 2.25% or 3.25%, respectively, and in the case of LIBOR, a floor of 0.75%. The interest rate at December 31, 2016 is 4.20%. 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 December 31, 2016 and 2015, there were no outstanding borrowings under the Match GroupMTCH Credit Facility. The annual commitment fee on undrawn funds based on the current consolidated net leverage ratio is 25 basis points and 30 basis points.points at December 31, 2018 and 2017, respectively. Borrowings under the Match GroupMTCH Credit Facility bear interest, at Match Group'sMTCH'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'sMTCH's consolidated net leverage ratio. The terms of the Match GroupMTCH Credit Facility require Match GroupMTCH to maintain a consolidated net leverage ratio of not more than 5.0 to 1.0 and a minimum interest coverage ratio of not less than 2.52.0 to 1.0 (in each case as defined in the agreement).
The MTCH Term Loan and MTCH Credit Facility contain covenants that would limit MTCH’s ability to pay dividends, make distributions or repurchase MTCH stock in the event MTCH’s secured net leverage ratio exceeds 2.0 to 1.0, while the MTCH Term Loan remains outstanding and, thereafter, if the consolidated net leverage ratio exceeds 4.0 to 1.0, or in the event a default has occurred. There are additional covenants under the Match Group Credit Facility and the Match Group Term Loanthese MTCH debt agreements that limit the ability of Match GroupMTCH 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 GroupMTCH Credit Facility and Match GroupMTCH Term Loan are unconditionally guaranteed by certain Match GroupMTCH wholly-owned domestic subsidiaries, and are also secured by the stock of certain Match GroupMTCH domestic and foreign subsidiaries. The Match GroupMTCH Term Loan and outstanding borrowings, if any, under the Match GroupMTCH Credit Facility rank equally with each other, and have priority over the 20166.375% and 2015 Match Group5.00% MTCH Senior Notes to the extent of the value of the assets securing the borrowings under the Match GroupMTCH credit agreement.
ANGI Term Loan and ANGI Credit Agreement.Facility
On November 1, 2017, ANGI borrowed $275 million under a five-year term loan facility ("ANGI Term Loan"). On November 5, 2018, the ANGI Term Loan was amended and restated, and is now due on November 5, 2023. Interest payments are due at least quarterly through the term of the loan and quarterly principal payments of 1.25% of the original principal amount in the first three years from the amendment date, 2.50% in the fourth year and 3.75% in the fifth year are required. The ANGI Term Loan bears interest at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018, which is subject to change in future periods based on ANGI's consolidated net leverage ratio. The ANGI Term Loan bore interest at LIBOR plus 2.00%, or 3.38%, at December 31, 2017.
The terms of the ANGI Term Loan require ANGI to maintain a consolidated net leverage ratio of not more than 4.5 to 1.0 and a minimum interest coverage ratio of not less than 2.0 to 1.0 (in each case as defined in the credit agreement). The ANGI Term Loan also contains covenants that would limit ANGI’s ability to pay dividends, make distributions or repurchase ANGI stock in the event a default has occurred or ANGI’s consolidated net leverage ratio exceeds 4.25 to 1.0. There are additional covenants under the ANGI Term Loan that limit the ability of ANGI and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions.
On November 5, 2018, ANGI entered into a five-year $250 million revolving credit facility (the "ANGI Credit Facility"). At December 31, 2018, there were no outstanding borrowings under the ANGI Credit Facility. The annual commitment fee on undrawn funds is currently 25 basis points, and is based on the consolidated net leverage ratio most recently reported. Borrowings under the ANGI Credit Facility bear interest, at ANGI's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on ANGI's consolidated net leverage ratio. The financial and other covenants are the same as those for the ANGI Term Loan.
The ANGI Term Loan and ANGI Credit Facility are guaranteed by ANGI's wholly-owned material domestic subsidiaries and are secured by substantially all assets of ANGI and the guarantors, subject to certain exceptions.
IAC Exchangeable Notes
On October 2, 2017, IAC FinanceCo, Inc., a direct, wholly-owned subsidiary of the Company, issued $517.5 million aggregate principal amount of its 0.875% Exchangeable Senior Notes (the "Exchangeable Notes"). The Exchangeable Notes are guaranteed by the Company. Each $1,000 of principal of the Exchangeable Notes is exchangeable for 6.5713 shares of the Company's common stock, which is equivalent to an exchange price of approximately $152.18 per share, subject to adjustment upon the occurrence of specified events. Upon exchange, the Company has the right to settle the principal amount of Exchangeable Notes with any of the three following alternatives: (1) shares of our common stock, (2) cash or (3) a combination of cash and shares of our common stock.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Exchangeable Notes are exchangeable at any time prior to the close of business on the business day immediately preceding July 1, 2022 only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days during the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price on each applicable trading day, which occurred in the third quarter of 2018; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the exchange rate on each such trading day; (3) if the issuer calls the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events as further described under the indenture governing the Exchangeable Notes. On or after July 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may exchange all or any portion of their Exchangeable Notes regardless of the foregoing conditions.
A portion of the net proceeds from the sale of the Exchangeable Notes of $499.5 million, after deducting fees and expenses, was used to pay the net premium of $50.7 million on the Exchangeable Note Hedge and Warrants (defined below).
We separately account for the debt and the equity components of the Exchangeable Notes. Accordingly, the Company recorded a debt discount and corresponding increase to additional paid-in capital of $70.4 million, which is the fair value attributed to the exchange feature or equity component of the debt, on the date of issuance. The Company is amortizing the debt discount utilizing the effective interest method over the life of the Exchangeable Notes which increases the effective interest rate from its coupon rate of 0.875% to 3.88%. Transaction costs of $18.0 million were allocated between the liability and equity components.
In connection with the debt offering, the Company purchased call options allowing the Company to purchase initially (subject to adjustment upon the occurrence of specified events) the entire 3.4 million shares that would be issuable upon the exchange of the Exchangeable Notes at approximately $152.18 per share (the "Exchangeable Note Hedge"), and sold warrants allowing the holder to purchase initially (subject to adjustment upon the occurrence of specified events) 3.4 million shares at $229.70 per share (the "Warrants"). The if-converted value of the Exchangeable Notes exceeds its principal amount by $105.0 million based on the Company's stock price on December 31, 2018. The Exchangeable Note Hedge is expected to reduce the potential dilutive effect on the Company's common stock upon any exchange of notes and/or offset any cash payment IAC FinanceCo, Inc. is required to make in excess of the principal amount of the exchanged notes. The Warrants have a dilutive effect on the Company's common stock to the extent that the market price per share of the Company common stock exceeds the strike price of the Warrants. The cost of the Exchangeable Note Hedge was $74.4 million, which was recorded as a reduction to additional paid-in capital. The aggregate proceeds from the issuance of the Warrant were $23.6 million, which was recorded as an increase to additional paid-in capital.
For the years ended December 31, 2018 and 2017, the Company incurred interest expense of $21.2 million and $5.2 million, which includes amortization of original issue discount of $13.1 million and $3.2 million, and debt issuance costs of $3.5 million and $0.9 million, respectively. As of December 31, 2018 and 2017, the unamortized discount is $54.0 million and $67.2 million, resulting in a net carrying value of the liability component of $463.5 million and $450.3 million, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
IAC Senior Notes:
The 2013 and 20124.75% Senior Notes were issued by IAC on November 15, 2013 and December 21, 2012, respectively. The 2013 and 2012 Senior2012. These Notes are unconditionally guaranteed by certain of our 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 22—"Note 19—Guarantor and Non-guarantorNon-Guarantor Financial Information"Information" for financial information relating to guarantor and non-guarantor. For the year ended December 31, 2016, the Company redeemed and repurchased $109.8 million of its 2013non-guarantor subsidiaries. The 4.75% Senior Notes and repurchased $16.6 million of its 2012 Senior Notes.
The indenture governing the 2013 Senior Notes contains covenants that would limit our ability to pay dividends or to make distributions and repurchase or redeem our stock in the event a default has occurred or our leverage ratio (as defined in the indenture) exceeds 3.0 to 1.0. At December 31, 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 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.
The Company may redeem the 2013 Senior Notesbe 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 November 30December 15 of the years indicated below:
|
| | | |
| Year | | Percentage |
| 2016 | | 101.625 | % |
| 2017 and thereafter | | 100.000 | % |
|
| | |
| Year | Percentage |
| 2018 | 101.583 | % |
| 2019 | 100.792 | % |
| 2020 and thereafter | 100.000 | % |
The redemption prices for the 2012 Senior Notes and the related time periods are identical to the 2015 Match Group Senior Notes presented above.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
IAC Credit Facility:
On November 5, 2018, the IAC hasCredit Facility, under which IAC Group, LLC, a direct, wholly-owned subsidiary of the Company is the borrower, was amended and restated, reducing the facility size from $300 million revolving credit facility (the "IAC Credit Facility") thatto $250 million, and now expires October 7, 2020.on November 5, 2023. At December 31, 20162018 and 2015,2017, there were no outstanding borrowings under the IAC Credit Facility. The annual commitment fee on undrawn funds is currently 35based on the consolidated net leverage ratio (as defined in the agreement) most recently reported, and is 20 basis points and is based on the leverage ratio most recently reported.25 basis points at December 31, 2018 and 2017, respectively. 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 consolidated net leverage ratio. The terms of the IAC Credit Facility require that the Company maintains a consolidated net leverage ratio (as defined in the agreement) of not more than 3.25 to 1.0 before the date on which the Company no longer holds majority of the outstanding voting stock of each of ANGI and MTCH ("Trigger Date") and no greater than 2.75 to 1.0 on or after the Trigger Date. The terms of the IAC Credit Facility also restrict our ability to incur additional indebtedness. Borrowings under the IAC Credit Facility are unconditionally guaranteed by substantially the same domestic subsidiaries that guarantee the 2013 and 20124.75% Senior Notes and are also secured by the stock of certain of our domestic and foreign subsidiaries.subsidiaries, which includes MTCH and ANGI. The 2013 and 20124.75% Senior Notes rank equally with each other, and are subordinate to the outstanding borrowings under the IAC Credit Facility to the extent of the value of the assets securing such borrowings.
Long-term debt maturities:
|
| | | |
| Years Ending December 31, | (In thousands) |
| 2018 | $ | 390,214 |
|
| 2022 | 833,281 |
|
| 2024 | 400,000 |
|
| Total | 1,623,495 |
|
| Less: Current portion of long-term debt | 20,000 |
|
| Less: Unamortized original issue discount and original issue premium, net | 5,245 |
|
| Less: Unamortized debt issuance costs | 15,766 |
|
| Total long term debt, net of current portion | $ | 1,582,484 |
|
|
| | | |
| Years Ending December 31, | (In thousands) |
| 2019 | $ | 13,750 |
|
| 2020 | 13,750 |
|
| 2021 | 13,750 |
|
| 2022 | 1,004,489 |
|
| 2023 | 452,500 |
|
| 2024 | 400,000 |
|
| 2027 | 450,000 |
|
| Total | 2,348,239 |
|
| Less: current portion of long-term debt | 13,750 |
|
| Less: unamortized original issue discount | 61,377 |
|
| Less: unamortized debt issuance costs | 27,564 |
|
| Total long-term debt, net | $ | 2,245,548 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10—8—SHAREHOLDERS' EQUITY
Description of Common Stock and Class B Convertible Common Stock
Except as described herein, shares of IAC common stock and IAC Class B common stock are identical.
Each holder of shares of IAC common stock and IAC Class B common stock vote together as a single class with respect to matters that may be submitted to a vote or for the consent of IAC's shareholders generally, including the election of directors. In connection with any such vote, each holder of IAC common stock is entitled to one vote for each share of IAC common stock held and each holder of IAC Class B common stock is entitled to ten votes for each share of IAC Class B common stock held. Notwithstanding the foregoing, the holders of shares of IAC common stock, acting as a single class, are entitled to elect 25% of the total number of IAC's directors, and, in the event that 25% of the total number of directors shall result in a fraction of a director, then the holders of shares of IAC common stock, acting as a single class, are entitled to elect the next higher whole number of IAC's directors. In addition, Delaware law requires that certain matters be approved by the holders of shares of IAC common stock or holders of IAC Class B common stock voting as a separate class.
Shares of IAC Class B common stock are convertible into shares of IAC common stock at the option of the holder thereof, at any time, on a share-for-share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of IAC by means of a stock dividend on, or a stock split or combination of, outstanding shares of IAC common stock or IAC Class B common stock, or in the event of any merger, consolidation or other reorganization of IAC with another corporation. Upon the conversion of shares of IAC Class B common stock into shares of IAC common stock, those shares of IAC Class B common stock will be retired and will not be subject to reissue. Shares of IAC common stock are not convertible into shares of IAC Class B common stock.
Except as described herein, shares of IAC common stock and IAC Class B common stock are identical. The holders of shares of IAC common stock and the holders of shares of IAC Class B common stock are entitled to receive, share for share, such dividends as may be declared by IAC's Board of Directors out of funds legally available therefore.therefor. In the event of a liquidation, dissolution, distribution of assets or winding-up of IAC, the holders of shares of IAC common stock and the holders
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of shares of IAC Class B common stock are entitled to receive, share for share, all the assets of IAC available for distribution to its stockholders, after the rights of the holders of any IAC preferred stock have been satisfied.
Reserved Common Shares
In connection with equity compensation plans, 17.9the Exchangeable Notes and warrants, 28.0 million shares of IAC common stock are reserved at December 31, 2016.2018.
Warrants and Exchangeable Notes
At December 31, 2018 and 2017, warrants to acquire initially (subject to adjustment upon the occurrence of specified events) 3.4 million shares of IAC common stock at $229.70 per share were outstanding. The warrants were issued in connection with the issuance of the Exchangeable Notes on October 2, 2017 for aggregate proceeds of $23.6 million. During the years ended December 31, 2018 and 2017, no warrants were exercised and no Exchangeable Notes were exchanged. See "Note 7—Long-term Debt" for additional information on the Exchangeable Notes. Common Stock Repurchases
During 2016the years ended December 31, 2018, 2017 and 2015,2016, the Company purchased 6.3repurchased 0.5 million, 0.7 million and 3.06.3 million shares of IAC common stock for aggregate consideration, on a trade date basis, of $82.9 million, $50.1 million and $315.3 million, and $200.0 million, respectively. During 2014, the Company did not purchase any shares of IAC common stock.
On May 3, 2016, IAC's Board of Directors authorized the repurchase of an additional 10.0 million shares of IAC common stock. At December 31, 2016,2018, the Company has approximately 9.38.0 million shares remaining in its share repurchase authorization.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11—9—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:
| | | | Year Ended December 31, 2016 | Year Ended December 31, 2018 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive Loss |
| | (In thousands) | (In thousands) |
| Balance at January 1 | $ | (154,645 | ) | | $ | 2,542 |
| | $ | (152,103 | ) | $ | (103,568 | ) | | $ | — |
| | $ | (103,568 | ) |
| Other comprehensive (loss) income before reclassifications, net of tax benefit of $0.7 million related to unrealized losses on available-for-sale securities | (46,943 | ) | | 4,855 |
| | (42,088 | ) | |
| Other comprehensive (loss) income before reclassifications | | (25,106 | ) | | 4 |
| | (25,102 | ) |
| Amounts reclassified to earnings | 9,850 |
| | (2,913 | ) | (a) | 6,937 |
| (52 | ) | | — |
| | (52 | ) |
| Net current period other comprehensive (loss) income | (37,093 | ) | | 1,942 |
| | (35,151 | ) | (25,158 | ) | | 4 |
| | (25,154 | ) |
| Reallocation of accumulated other comprehensive loss (income) related to the noncontrolling interests created in the Match Group IPO | 21,589 |
| | (458 | ) | | 21,131 |
| |
| Balance at December 31 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) | $ | (128,726 | ) | | $ | 4 |
| | $ | (128,722 | ) |
_________________________ | |
(a) | Amount is net of a tax provision of $0.2 million. |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income |
| | (In thousands) |
| Balance at January 1 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) |
| Other comprehensive income before reclassifications | 65,908 |
| | 7 |
| | 65,915 |
|
| Amounts reclassified to earnings | 673 |
| | (4,033 | ) | | (3,360 | ) |
| Net current period other comprehensive income (loss) | 66,581 |
| | (4,026 | ) | | 62,555 |
|
| Balance at December 31 | $ | (103,568 | ) | | $ | — |
| | $ | (103,568 | ) |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income |
| | (In thousands) |
| Balance at January 1 | $ | (154,645 | ) | | $ | 2,542 |
| | $ | (152,103 | ) |
| Other comprehensive (loss) income before reclassifications, net of tax benefit of $0.7 million related to unrealized losses on available-for-sale securities | (46,943 | ) | | 4,855 |
| | (42,088 | ) |
| Amounts reclassified to earnings | 9,850 |
| | (2,913 | ) | | 6,937 |
|
| Net current period other comprehensive (loss) income | (37,093 | ) | | 1,942 |
| | (35,151 | ) |
| Reallocation of accumulated other comprehensive loss (income) related to the noncontrolling interests created in the Match Group IPO | 21,589 |
| | (458 | ) | | 21,131 |
|
| Balance at December 31 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) |
The amounts reclassified out of foreign currency translation adjustment into earnings for the years ended December 31, 2018, 2017 and 2016 relate to the liquidation of international subsidiaries. The amounts reclassified out of unrealized gains on available-for-sale securities into earnings for the years ended December 31, 2017 and 2016, include a tax benefit of $3.8 million and a tax provision of $0.2 million, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Foreign Currency Translation Adjustment | | Unrealized (Losses) Gain On Available-For-Sale Securities | | Accumulated Other Comprehensive Loss |
| | (In thousands) |
| Balance at January 1 | $ | (86,848 | ) | | $ | (852 | ) | | $ | (87,700 | ) |
| Other comprehensive (loss) income before reclassifications, net of tax provision of $0.6 million related to unrealized gains on available-for-sale securities | (65,606 | ) | | 3,537 |
| | (62,069 | ) |
| Amounts reclassified to earnings | (2,191 | ) | | (143 | ) | (b) | (2,334 | ) |
| Net current period other comprehensive (loss) income | (67,797 | ) | | 3,394 |
| | (64,403 | ) |
| Balance at December 31 | $ | (154,645 | ) | | $ | 2,542 |
| | $ | (152,103 | ) |
_________________________(b) Amount is net of a tax provision of $0.1 million.
NOTE 12—10—EARNINGS (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) earnings per share attributable to IAC shareholders.shareholders:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted |
| | (In thousands, except per share data) |
| Numerator: | | | | | | | | | | | |
| (Loss) earnings from continuing operations | $ | (16,340 | ) | | $ | (16,340 | ) | | $ | 113,357 |
| | $ | 113,357 |
| | $ | 234,557 |
| | $ | 234,557 |
|
| Net (earnings) loss attributable to noncontrolling interests | (25,129 | ) | | (25,129 | ) | | 6,098 |
| | 6,098 |
| | 5,643 |
| | 5,643 |
|
Impact from Match Group's dilutive securities (a) (b) | — |
| | — |
| | — |
| | (1,799 | ) | | — |
| | — |
|
| (Loss) earnings from continuing operations attributable to IAC shareholders | (41,469 | ) | | (41,469 | ) | | 119,455 |
| | 117,656 |
| | 240,200 |
| | 240,200 |
|
| Earnings from discontinued operations attributable to IAC shareholders | 189 |
| | 189 |
| | 17 |
| | 17 |
| | 174,673 |
| | 174,673 |
|
| Net (loss) earnings attributable to IAC shareholders | $ | (41,280 | ) | | $ | (41,280 | ) | | $ | 119,472 |
| | $ | 117,673 |
| | $ | 414,873 |
| | $ | 414,873 |
|
| | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | |
| Weighted average basic shares outstanding | 80,045 |
| | 80,045 |
| | 82,944 |
| | 82,944 |
| | 83,292 |
| | 83,292 |
|
Dilutive securities including subsidiary denominated equity, stock options and RSUs(c) (d) (e)(f) | — |
| | — |
| | — |
| | 5,323 |
| | — |
| | 5,266 |
|
Denominator for earnings per share—weighted average shares(c) (d) (e)(f) | 80,045 |
| | 80,045 |
| | 82,944 |
| | 88,267 |
| | 83,292 |
| | 88,558 |
|
| | | | | | | | | | | | |
| (Loss) earnings per share attributable to IAC shareholders: |
| (Loss) earnings per share from continuing operations | $ | (0.52 | ) | | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 1.33 |
| | $ | 2.88 |
| | $ | 2.71 |
|
| Discontinued operations | — |
| | — |
| | — |
| | — |
| | 2.10 |
| | 1.97 |
|
| (Loss) earnings per share | $ | (0.52 | ) | | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 1.33 |
| | $ | 4.98 |
| | $ | 4.68 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted |
| | (In thousands, except per share data) |
| Numerator: | | | | | | | | | | | |
| Net earnings (loss) | $ | 757,747 |
| | $ | 757,747 |
| | $ | 358,008 |
| | $ | 358,008 |
| | $ | (16,151 | ) | | $ | (16,151 | ) |
| Net earnings attributable to noncontrolling interests | (130,786 | ) | | (130,786 | ) | | (53,084 | ) | | (53,084 | ) | | (25,129 | ) | | (25,129 | ) |
Impact from public subsidiaries' dilutive securities (a)(b) | — |
| | (25,228 | ) | | — |
| | (33,531 | ) | | — |
| | — |
|
| Net earnings (loss) attributable to IAC shareholders | $ | 626,961 |
| | $ | 601,733 |
| | $ | 304,924 |
| | $ | 271,393 |
| | $ | (41,280 | ) | | $ | (41,280 | ) |
| | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | |
| Weighted average basic shares outstanding | 83,407 |
| | 83,407 |
| | 80,089 |
| | 80,089 |
| | 80,045 |
| | 80,045 |
|
Dilutive securities (a) (b) (c) (d) (e) (f) (g) | — |
| | 7,915 |
| | — |
| | 5,221 |
| | — |
| | — |
|
Denominator for earnings per share—weighted average shares(a) (b) (c) (d) (e) (f) (g) | 83,407 |
| | 91,322 |
| | 80,089 |
| | 85,310 |
| | 80,045 |
| | 80,045 |
|
| | | | | | | | | | | | |
| Earnings (loss) per share attributable to IAC shareholders: |
| Earnings (loss) per share | $ | 7.52 |
| | $ | 6.59 |
| | $ | 3.81 |
| | $ | 3.18 |
| | $ | (0.52 | ) | | $ | (0.52 | ) |
| |
| (a) | RepresentsFor the impact on earnings relatedyear ended December 31, 2018, it is more dilutive for IAC to Match Group'ssettle certain MTCH equity awards. For the years ended December 31, 2017 and 2016, it is more dilutive securities under the if-converted method.for MTCH to settle certain MTCH equity awards. |
| |
| (b) | For the years ended December 31, 2018 and 2017, it is more dilutive for IAC to settle certain ANGI equity awards. The impact on earnings of Match Group'sANGI dilutive securities is not applicable for periods prior to the yearCombination. |
| |
| (c) | If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options, warrants and subsidiary denominated equity, exchange of the Company's Exchangeable Notes and vesting of restricted stock units ("RSUs"). For the years ended December 31, 2014 as it was a wholly-owned subsidiary of the Company until its IPO on November 24, 2015. For the year ended December 31, 2016, the impact on earnings related to Match Group's2018 and 2017, 3.5 million and 6.9 million potentially dilutive securities, underrespectively, are excluded from the if-converted method is excluded as the impact iscalculation of diluted earnings per share because their inclusion would have been anti-dilutive. |
| |
(c)(d) | For the year ended December 31, 2016, the Company had a loss from continuing operations; therefore, approximately 11.3 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, stock options and vesting of restricted stock units ("RSUs"). For the years ended December 31, 2015 and 2014, 1.2 million and 0.3 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. |
| |
| (e) | Market-based awards and performance-based stock units (“PSUs”("PSUs") are considered contingently issuable shares. Market-basedShares issuable upon exercise or vesting of market-based awards and PSUs are included in the denominator for earnings per share if (i) the applicable market or performance condition(s) has been met and (ii) the inclusion of the market-based awards and PSUs areis dilutive for the respective reporting periods. For both the yearyears ended December 31, 2015, 0.62018 and 2017, 0.1 million shares underlying market-based awards and PSUs were excluded from the calculation of diluted earnings per share because the market or performance conditions had not been met. For the year ended December 31, 2014, less than 0.1 million PSUs were excluded from the calculation of diluted earnings per share because the performance conditions had not been met. |
| |
| (f) | It is the Company's intention to settle the Exchangeable Notes through a combination of cash, equal to the face amount of the notes, and shares; therefore, the Exchangeable Notes are only dilutive for periods during which the average price of IAC common stock exceeds the approximate $152.18 per share exchange price per $1,000 principal amount of the Exchangeable Notes. For the year ended December 31, 2018, the average price of IAC common stock exceeded $152.18 and the dilutive impact of the Exchangeable Notes was 0.3 million shares. For the year ended December 31, 2017, the Exchangeable Notes were anti-dilutive. |
NOTE 13—11—STOCK-BASED COMPENSATION
IAC currently has two active plans under which awards have been granted. These plans cover stock options to acquire shares of IAC common stock, RSUs PSUs and restricted stock,PSUs, as well as provide for the future grant of these and other equity awards. These
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
plans authorize the Company to grant awards to its employees, officers, directors and consultants. At December 31, 2016,2018, there are 5.911.5 million shares available for grant under the plans.
The plans were adopted in 20082013 and 2013,2018, have a stated term of ten years, and provide that the exercise price of stock options granted will not be less than the market price of the Company's common stock on the grant date. The plans do not specify grant dates or vesting schedules of awards as those determinations have been delegated to the Compensation and Human Resources Committee of IAC's Board of Directors (the "Committee"). Each grant agreement reflects the vesting schedule for that particular grant as determined by the Committee. Broad-based stock option awards issued to date have generally vested in equal annual installments over a four-year period and RSU awards currently outstanding generally vest in three 33% installments over a three-year period, in each case, from the grant date. PSU awards currently outstanding cliff-vest after a three-year period from the date of grant.
The amount of stock-based compensation expense recognized in the consolidated statement of operations is reduced bynet of estimated forfeitures, as the expense recorded is based on awards that are ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. At December 31, 2016,2018, there is $177.9$326.0 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 2.62.3 years.
The total income tax benefit recognized in the accompanying consolidated statement of operations for the years ended December 31, 2018, 2017 and 2016 2015related to all stock-based compensation is $189.0 million, $423.0 million and 2014$34.8 million, respectively. The increase in total income tax benefit recognized in the consolidated statement of operations during 2017 relative to 2016 is due to the adoption of ASU 2016-09, effective January 1, 2017, which required the recognition of excess tax benefits attributable to stock-based compensation to be included as a component of the provision for income taxes rather than recognized in equity. The aggregate income tax benefit recognized related solely to stock options for the years ended December 31, 2018, 2017 and 2016, including the portion recognized as a component of equity in 2016 is $169.0 million, $411.6 million, and $63.4 million, respectively.
As the Company is currently in an NOL position, there will be some delay in the timing of the realization of the cash benefit of the income tax deductions related to stock-based compensation is $34.8 million, $36.6 millionbecause it will be dependent upon the amount and $22.2 million, respectively.timing of future taxable income and the timing of estimated income tax payments.
IAC Stock Options
Stock options outstanding at December 31, 20162018 and changes during the year ended December 31, 20162018 are as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | December 31, 2016 | December 31, 2018 |
| | Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term | | Aggregate
Intrinsic
Value | Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term (In Years) | | Aggregate
Intrinsic
Value |
| | (Shares and intrinsic value in thousands) | (Shares and intrinsic value in thousands) |
| Options outstanding at January 1, 2016 | 7,283 |
| | $ | 52.13 |
| | | | |
| |
| Options outstanding at January 1, 2018 | | 6,586 |
| | $ | 60.57 |
| | | | |
|
| Granted | 1,722 |
| | 46.25 |
| | | | |
| 80 |
| | 152.53 |
| | | | |
|
| Exercised | (740 | ) | | 34.90 |
| | | | |
| (774 | ) | | 52.56 |
| | | | |
|
| Forfeited | (142 | ) | | 53.30 |
| | | | |
| (72 | ) | | 57.52 |
| | | | |
|
| Expired | (65 | ) | | 55.31 |
| | | | |
| (6 | ) | | 19.51 |
| | | | |
|
| Options outstanding at December 31, 2016 | 8,058 |
| | $ | 52.41 |
| | 6.7 | | $ | 120,681 |
| |
| Options outstanding at December 31, 2018 | | 5,814 |
| | $ | 62.97 |
| | 6.1 | | $ | 698,128 |
|
| Options exercisable | 4,170 |
| | $ | 44.91 |
| | 4.9 | | $ | 87,865 |
| 3,592 |
| | $ | 59.64 |
| | 5.3 | | $ | 443,293 |
|
The aggregate intrinsic value in the table above represents the difference between IAC's closing stock price on the last trading day of 20162018 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders exercised
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
had all option holders exercised their options on December 31, 2016.2018. The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 2015 and 2014 is $17.1$83.7 million, $53.0$164.6 million and $63.3$17.1 million, respectively.
The following table summarizes the information about stock options outstanding and exercisable at December 31, 20162018:
| | | | Options Outstanding | | Options Exercisable | Options Outstanding | | Options Exercisable |
| Range of Exercise Prices | Outstanding at
December 31,
2016 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price | | Exercisable at
December 31,
2016 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price | Outstanding at
December 31,
2018 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price | | Exercisable at
December 31,
2018 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price |
| | (Shares in thousands) | (Shares in thousands) |
| $10.01 to $20.00 | 404 |
| | 2.6 | | $ | 18.02 |
| | 404 |
| | 2.6 | | $ | 18.02 |
| |
| $20.01 to $30.00 | 238 |
| | 2.3 | | 20.97 |
| | 238 |
| | 2.3 | | 20.97 |
| 30 |
| | 1.1 | | $ | 21.60 |
| | 30 |
| | 1.1 | | $ | 21.60 |
|
| $30.01 to $40.00 | 913 |
| | 4.1 | | 31.61 |
| | 913 |
| | 4.1 | | 31.61 |
| 389 |
| | 2.3 | | 32.30 |
| | 389 |
| | 2.3 | | 32.30 |
|
| $40.01 to $50.00 | 2,727 |
| | 7.1 | | 44.31 |
| | 1,389 |
| | 5.1 | | 46.35 |
| 1,541 |
| | 5.8 | | 43.35 |
| | 961 |
| | 5.0 | | 44.26 |
|
| $50.01 to $60.00 | 464 |
| | 5.7 | | 58.30 |
| | 333 |
| | 4.3 | | 58.80 |
| 246 |
| | 3.2 | | 59.85 |
| | 244 |
| | 3.2 | | 59.86 |
|
| $60.01 to $70.00 | 1,850 |
| | 8.0 | | 64.70 |
| | 540 |
| | 7.2 | | 64.72 |
| 1,173 |
| | 6.3 | | 65.27 |
| | 767 |
| | 6.0 | | 65.62 |
|
| $70.01 to $80.00 | 962 |
| | 8.2 | | 74.23 |
| | 228 |
| | 7.8 | | 73.20 |
| 1,840 |
| | 7.4 | | 75.33 |
| | 822 |
| | 6.8 | | 74.72 |
|
| $80.01 to $90.00 | 500 |
| | 8.3 | | 84.31 |
| | 125 |
| | 8.3 | | 84.31 |
| 500 |
| | 6.3 | | 84.31 |
| | 375 |
| | 6.3 | | 84.31 |
|
| Greater than $90.01 | | 95 |
| | 9.1 | | 148.30 |
| | 4 |
| | 8.9 | | 125.08 |
|
| | 8,058 |
| | 6.7 | | $ | 52.41 |
| | 4,170 |
| | 4.9 | | $ | 44.91 |
| 5,814 |
| | 6.1 | | 62.97 |
| | 3,592 |
| | 5.3 | | 59.64 |
|
The fair value of stock option awards, with the exception of market-based awards, is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and expected term. During 2016, 20152018, 2017 and 2014,2016, expected stock price volatilities were estimated based on the Company's historical volatility. The risk-free interest rates are based on U.S. Treasuries with comparable terms as the awards, in effect at the grant date. Expected term is based upon the historical exercise behavior of our employees and the dividend yields are based on IAC's historical dividend payments. The following are the weighted average assumptions used in the Black-Scholes option pricing model:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| Expected volatility | 29 | % | | 28 | % | | 31 | % | 27 | % | | 29 | % | | 29 | % |
| Risk-free interest rate | 1.2 | % | | 1.6 | % | | 1.5 | % | 2.7 | % | | 2.0 | % | | 1.2 | % |
| Expected term | 4.8 years |
| | 5.3 years |
| | 4.8 years |
| 6.2 years |
| | 5.2 years |
| | 4.8 years |
|
| Dividend yield | — | % | | 2.0 | % | | 1.5 | % | — | % | | — | % | | — | % |
During 2015,2018, the Company granted market-based stock options to certain employees. These awardsthat only vest if the price of IAC common stock exceeds the relevant price threshold for a twenty-day consecutive period and the service requirement is met. The market-based vesting condition was achieved in the fourth quarter of 2018. The service requirement provides that these awards vestthis award vests in four equal annualtwo installments, beginning on the first anniversary of50% in 2021 and the grant date.second 50% in 2022. The grant date fair value of eachthe market-based award iswas estimated using a lattice model that incorporates a Monte Carlo simulation of IAC's stock price. The inputs used to fair value these awards include a weighted averagethis award included an expected volatility of 27%29%, risk-free interest rate of 2.3%2.8% and a 1.8% dividendzero-dividend yield. The expected term of these awards is1.8 years for this award was derived from the output of the option valuation model. Expense is recognized over the longer of the vesting period of each of the fourtwo installments or the expected term. The weighted average expected term of these awards is 4 years.
Approximately 1.7less than 0.1 million, 2.51.2 million and 0.71.7 million stock options were granted by the Company during the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively. The weighted average fair value of stock options granted during the years ended December 31, 2018, 2017 and 2016 2015are $53.94, $22.94 and 2014 with exercise prices equal to the market prices$12.34, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash received from stock option exercises and the related tax benefit realized for the years ended December 31, 2018, 2017 and 2016 2015 and 2014 are: $25.8was $41.7 million, and $6.1 million; $27.3$82.4 million and $25.8 million; and $39.1 million and $25.5 million, respectively. In January 2014, a portion of the Company's former Chief Executive Officer (the "Executive") who became the Chairman of Match Group outstanding IAC
The Company has historically settled its stock options on a gross basis. Assuming all stock options outstanding on December 31, 2018 were cancelednet settled on that date, the Company would have remitted $349.1 million (of which $221.6 million is related to vested stock options and replaced with equity denominated$127.4 million is related to unvested stock options) in Match Group and various subsidiaries of Match Group. The incremental expense associated with this modification was $7.4 million.cash for withholding taxes (assuming a 50% withholding rate).
IAC Restricted Stock Units and Performance-based Stock Units
RSUs and PSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of IAC common stock and with the value of each RSU and PSU equal to the fair value of IAC common stock at the date of grant. Each RSU and PSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. PSUs also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests. For RSU grants, the expense is measured at the grant date as the fair value of IAC common stock and expensed as stock-based compensation over the vesting term. For PSU grants, the expense is measured at the grant date as the fair value of IAC common stock and expensed as stock-based compensation over the vesting term if the performance targets are considered probable of being achieved.
Unvested RSUs and PSUs outstanding at December 31, 20162018 and changes during the year ended December 31, 20162018 are as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | RSUs | | PSUs | RSUs | | PSUs |
| | Number
of shares | | Weighted
Average
Grant Date
Fair Value | | Number
of shares | | Weighted
Average
Grant Date
Fair Value | Number
of shares | | Weighted
Average
Grant Date
Fair Value | | Number
of shares | | Weighted
Average
Grant Date
Fair Value |
| | (Shares in thousands) | (Shares in thousands) |
| Unvested at January 1, 2016 | 650 |
| | $ | 57.76 |
| | 2 |
| | $ | 71.39 |
| |
| Unvested at January 1, 2018 | | 360 |
| | $ | 80.81 |
| | 130 |
| | $ | 76.00 |
|
| Granted | 148 |
| | 46.92 |
| | — |
| | — |
| 153 |
| | 183.33 |
| | 30 |
| | 152.53 |
|
| Vested | (268 | ) | | 52.41 |
| | (2 | ) | | 71.39 |
| (49 | ) | | 78.54 |
| | — |
| | — |
|
| Forfeited | (4 | ) | | 61.68 |
| | — |
| | — |
| (5 | ) | | 98.81 |
| | (17 | ) | | 76.00 |
|
| Unvested at December 31, 2016 | 526 |
| | $ | 57.41 |
| | — |
| | $ | — |
| |
| Unvested at December 31, 2018 | | 459 |
| | $ | 115.12 |
| | 143 |
| | $ | 92.02 |
|
The weighted average fair value of RSUs and PSUs granted during the years ended December 31, 2016, 20152018, 2017 and 20142016 based on market prices of IAC's common stock on the grant date was $46.92, $67.71$178.29, $90.04 and $68.13,$46.92, respectively. The total fair value of RSUs and PSUs that vested during the years ended December 31, 2018, 2017 and 2016 2015 and 2014 was $13.5$8.9 million, $16.8$32.5 million and $20.4$13.5 million, respectively.
Equity Instruments Denominated in the Shares of Certain Subsidiaries
Non-publicly-traded Subsidiaries
The following description excludes awards denominated in the shares of the Company's publicly-traded subsidiary, Match Group. Match Groupsubsidiaries, MTCH and ANGI. MTCH and ANGI stock-based awards are issued pursuant to itstheir respective stock incentive plan.plans.
IACThe Company has granted stock options and stock settled stock appreciation rights denominated in the equity of itscertain non-publicly traded subsidiaries to employees and management of certainthose subsidiaries. These equity awards vest over a period of years or upon the occurrence of certain prescribed events. The value of the stock options and stock settled stock appreciation rights is tied to the value of the common stock of these subsidiaries. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price. These interests can have significant value in the event of significant appreciation. The interests are ultimately settled in IAC common stock with fair market value of these interest is generally determined by negotiation or arbitration, when settled; which will occur at various dates through 2026.2025. These equity awards are settled on a net basis, with the award holder entitled to
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
receive a payment in IAC common shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment. The number of IAC common shares ultimately needed to settle these awards may vary significantly from the estimated numbersnumber below as a result of both movements in our stock price and a determination of fair value of the relevant subsidiary that is different than our estimate. The expense associated with these equity awards is initially measured at fair value at the grant date and is expensed as stock-based compensation over the vesting term. The aggregate number of IAC common shares that would be required to settle these interests other than for Match Group subsidiaries, at current estimated fair values, including vested and unvested interests, (which will be reduced by the number of shares withheld to cover employee withholding taxes), at December 31, 20162018 is 2.8 million shares, which is included in the calculation of diluted earnings per share, if the effect is dilutive. The comparable amount at December 31, 2015 is 2.30.1 million shares. Giving effect to withholdingWithholding taxes, which will be paid by the Company on behalf of the employees atupon exercise, the aggregate number of shares and cash that would be required to settle the vested and unvested interestshave been $16.0 million at estimated fair values on December 31, 2016 is 1.4 million shares and $90.8 million, respectively,2018, assuming a 50% withholding rate; the comparable amounts atrate.
MTCH
MTCH currently settles substantially all equity awards on a net basis. Assuming all MTCH equity awards outstanding on December 31, 2015 are 1.12018 were net settled on that date, MTCH would have issued 9.7 million common shares (of which 1.7 million is related to vested shares and $69.18.0 million respectively.is related to unvested shares) and would have remitted $416.2 million (of which $75.0 million is related to vested shares and $341.2 million is related to unvested shares) in cash for withholding taxes (assuming a 50% withholding rate). If MTCH decided to issue a sufficient number of shares to cover the $416.2 million employee withholding tax obligation, 9.7 million additional shares would be issued by MTCH.
Following the completion of the Match GroupMTCH IPO, equity awards that relaterelated to thecertain subsidiaries (principally Tinder, Inc.) of Match Group will beMTCH were settleable, at IAC's election, in shares of IAC common stock or Match GroupMTCH common stock. ToPursuant to the Employee Matters Agreement between IAC and MTCH, to the extent shares of IAC common stock are issued in settlement of these awards, Match Group will reimburseMTCH reimburses IAC for the cost of those shares in cash or by issuing IAC shares of Match GroupMTCH common stock. The aggregate numberIn July 2017, Tinder was merged into MTCH and as a result, all Tinder denominated equity awards were converted into MTCH tandem stock options ("Tandem Awards"). All of the MTCH Tandem Awards exercised during 2018 and 2017 were exercised on a net basis and were settled in IAC common shares; the Company issued 0.7 million and 2.0 million shares, respectively, of its common stock to settle these awards and MTCH issued 2.5 million and 11.3 million shares, respectively, of its common stock to IAC as reimbursement. Assuming all vested and unvested Tandem Awards outstanding on December 31, 2018 were exercised on that date and settled using IAC stock, 0.3 million IAC common shares at December 31, 2016 that would be requiredhave been issued in settlement and MTCH would have issued 1.4 million shares, which is included in the amount above, to settle Match Group subsidiary equity awards at current estimated fair values, includingIAC as reimbursement.
During 2017, MTCH also purchased certain fully vested Tandem Awards, and unvested interests (which will be reduced by the numbermade cash payments of shares withheldapproximately $520 million to cover employee withholding taxes), is 5.1 million shares andboth the comparable amount at December 31, 2015 is 4.1 million shares. Giving effect to withholding taxes which will be paid by Match Group on behalf of employees exercising these converted awards and the employees at exercise, the aggregate numberpurchase of shares and cash that would be required to settle thecertain fully vested and unvested interests at estimated fair values on December 31, 2016 is 2.5 million shares and $164.6 million, respectively, assuming a 50% withholding rate; the comparable amounts at December 31, 2015 are 2.1 million shares and $123.2 million, respectively. These amounts are in addition to the numbers in the paragraph above. Assuming no change in the
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
value of the Company’s common stock at December 31, 2016, each incremental increase of 10% over the Company’s December 31, 2016 fair value estimate of these Match Group subsidiaries would require approximately 0.7 million incremental aggregate shares to settle these awards.
During 2016, and 2015, the Company granted a nominal amount of IAC denominated market-based awards to certain Match GroupMTCH employees. The number of awards that ultimately vest is dependent upon Match Group'sMTCH's stock price. The grant date fair value of each market-based award is estimated using a lattice model that incorporates a Monte Carlo simulation of Match Group'sMTCH's stock price. Each market-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. Some of the market-based awards contain performance targets set at the time of grant that must be achieved before an award vests.
ANGI
In connection with the Combination, previously issued stock appreciation rights related to the common stock of HomeAdvisor (US) were converted into ANGI stock appreciation rights that are settleable, at ANGI's option, on a net basis with ANGI remitting withholding taxes on behalf of the employee or on a gross basis with ANGI issuing a sufficient number of Class A shares to cover the withholding taxes. In addition, at IAC's option, these awards can be settled in either Class A shares of ANGI or shares of IAC common stock. If settled in IAC common stock, ANGI reimburses IAC in either cash or through the issuance of Class A shares to IAC. Assuming all of the stock appreciation rights outstanding on December 31, 2018 were net settled on that date using IAC stock, 1.1 million IAC common shares would have been issued in settlement and IAC would have been issued 12.8 million shares of ANGI Class A stock and ANGI would have remitted $205.9 million in cash for withholding taxes (assuming a 50% withholding rate). If ANGI decided to issue a sufficient number of shares to cover the $205.9 million employee withholding tax obligation, 12.8 million additional Class A shares would be issued by ANGI. ANGI's
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
cash withholding obligation on all other ANGI net settled awards outstanding on December 31, 2018 is $36.5 million (assuming a 50% withholding rate), which is the equivalent of 2.3 million shares.
Prior to the Combination in 2017, the Company issued a number of IAC denominated PSUs to certain ANGI employees. Vesting of the PSUs is contingent upon ANGI's performance. Assuming all of the PSUs outstanding on December 31, 2018 were net settled on that date using IAC stock, 0.1 million IAC common shares would have been issued in settlement and IAC would have been issued 0.6 million shares of ANGI Class A stock and ANGI would have remitted $10.4 million in cash for withholding taxes (assuming a 50% withholding rate).
Modification of awards
During 2018, the Company modified certain equity awards and recognized modification charges of $7.9 million. In addition, in connection with the ANGI chief executive officer transition during the fourth quarter of 2018, ANGI accelerated $3.9 million of expense into 2018 from 2019.
In connection with the Combination, the previously issued HomeAdvisor (US) stock appreciation rights were converted into ANGI equity awards resulting in a modification charge of $217.7 million of which $56.9 million and $93.4 million were recognized as stock-based compensation expense in the years ended December 31, 2018 and 2017, respectively, and the remaining charge will be recognized over the vesting period of the modified awards.
During the firstsecond quarter of 2017, the Company modified certain HomeAdvisor (US) denominated equity awards and recognized a modification charge of $6.6 million.
During 2016, the Company modified certain subsidiary denominated equity awards resulting in a modification charge of $7.3 million (subsequently reduced to $7.1 million due to forfeitures) of which $0.1 million, $0.7 million and $6.3 million waswere recognized as stock-based compensation forin the yearyears ended December 31, 2018, 2017 and 2016, and $1.0 million will be recognized over the remaining life of the modified awards.
During the first quarter of 2015, the Company modified certain subsidiary denominated equity awards resulting in a modification charge of $5.8 million of which $0.6 million and $3.5 million was recognized in 2016 and 2015, respectively, and the remaining charge will be recognized over the remaining life of the modified awards through 2019. During the third quarter of 2015, the Company modified certain subsidiary denominated vested equity awards and recognized a modification charge of $6.8 million. During the fourth quarter of 2015, the Company repurchased certain subsidiary denominated vested equity awards in exchange for $23.4 million in cash and fully vested modified equity awards and recognized a modification charge of $7.7 million. These modification charges are included in stock-based compensation for the year ended December 31, 2015.respectively.
During 2014, the Company granted an equity award denominated in shares of a subsidiary of the Company to a non-employee. This award isnon-employee, which was marked to market each reporting period. The award vests at multiple times a year and is fully vested in October 2017. In the third quarter of 2016, the CompanyMTCH settled the vested portion of the award for cash of $13.4 million. At December 31, 2016,In the total fair valuethird quarter of 2017, the award was modified and MTCH settled the remaining portion of the remaining award at current estimated fair value, including vested and unvested interests, is $14.3for cash of $33.9 million.
NOTE 14—12—SEGMENT INFORMATION.
The overall concept that IAC employs in determining its operating segments is to present the financial information in a manner consistent withwith: how the chief operating decision maker views the businesses,businesses; how the businesses are organized as to segment management,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 Emerging & Other reportable segment, do not meet the quantitative thresholds that require presentation as separate operatingreportable segments.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Revenue: | | | | | |
| Match Group | $ | 1,222,526 |
| | $ | 1,020,431 |
| | $ | 888,268 |
|
| HomeAdvisor | 498,890 |
| | 361,201 |
| | 283,541 |
|
| Video | 228,649 |
| | 213,317 |
| | 182,454 |
|
| Applications | 604,140 |
| | 760,748 |
| | 776,707 |
|
| Publishing | 407,313 |
| | 691,686 |
| | 791,549 |
|
| Other | 178,949 |
| | 184,095 |
| | 187,834 |
|
| Inter-segment elimination | (585 | ) | | (545 | ) | | (806 | ) |
| Total | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents revenue by reportable segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Operating Income (Loss): | | | | | |
| Match Group | $ | 305,908 |
| | $ | 193,556 |
| | $ | 228,567 |
|
| HomeAdvisor | 35,343 |
| | 6,452 |
| | 1,061 |
|
| Video | (27,656 | ) | | (38,756 | ) | | (43,346 | ) |
| Applications | 109,663 |
| | 175,145 |
| | 178,960 |
|
| Publishing | (334,417 | ) | | (26,692 | ) | | 110,523 |
|
| Other | (2,037 | ) | | (9,186 | ) | | 8,108 |
|
| Corporate | (119,429 | ) | | (120,931 | ) | | (105,146 | ) |
| Total | $ | (32,625 | ) | | $ | 179,588 |
| | $ | 378,727 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
Adjusted EBITDA:(a) | | | | | |
| Match Group | $ | 403,955 |
| | $ | 278,667 |
| | $ | 273,448 |
|
| HomeAdvisor | 48,546 |
| | 18,529 |
| | 17,701 |
|
| Video | (21,247 | ) | | (38,384 | ) | | (39,916 | ) |
| Applications | 132,276 |
| | 184,258 |
| | 186,192 |
|
| Publishing | (7,571 | ) | | 87,788 |
| | 150,960 |
|
| Other | 1,227 |
| | 10,621 |
| | 13,134 |
|
| Corporate | (55,967 | ) | | (55,689 | ) | | (57,443 | ) |
| Total | $ | 501,219 |
| | $ | 485,790 |
| | $ | 544,076 |
|
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | (In thousands) |
Segment Assets:(b) | | | |
| Match Group | $ | 509,936 |
| | $ | 330,736 |
|
| HomeAdvisor | 97,751 |
| | 32,116 |
|
| Video | 230,269 |
| | 90,671 |
|
| Applications | 109,019 |
| | 108,997 |
|
| Publishing | 409,838 |
| | 391,450 |
|
| Other | — |
| | 64,550 |
|
| Corporate | 1,009,557 |
| | 1,483,979 |
|
| Total | $ | 2,366,370 |
| | $ | 2,502,499 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Capital expenditures: | | | | | |
| Match Group | $ | 48,903 |
| | $ | 29,156 |
| | $ | 21,793 |
|
| HomeAdvisor | 16,660 |
| | 10,170 |
| | 6,775 |
|
| Video | 2,508 |
| | 2,466 |
| | 1,878 |
|
| Applications | 1,196 |
| | 4,681 |
| | 4,220 |
|
| Publishing | 2,093 |
| | 6,283 |
| | 13,481 |
|
| Other | 2,907 |
| | 3,175 |
| | 2,845 |
|
| Corporate | 3,772 |
| | 6,118 |
| | 6,241 |
|
| Total | $ | 78,039 |
| | $ | 62,049 |
| | $ | 57,233 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Revenue: | | | | | |
| Match Group | $ | 1,729,850 |
| | $ | 1,330,661 |
| | $ | 1,118,110 |
|
| ANGI Homeservices | 1,132,241 |
| | 736,386 |
| | 498,890 |
|
| Vimeo | 159,641 |
| | 103,332 |
| | 78,805 |
|
| Dotdash | 130,991 |
| | 90,890 |
| | 77,913 |
|
| Applications | 582,287 |
| | 577,998 |
| | 604,140 |
|
| Emerging & Other | 528,250 |
| | 468,589 |
| | 762,609 |
|
| Inter-segment elimination | (368 | ) | | (617 | ) | | (585 | ) |
| Total | $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
| |
(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, and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC's statement of operations of certain expenses. |
| |
(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. |
The following table presents the revenue of the Company's segments disaggregated by type of service:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Match Group | | | | | |
| Direct revenue: | | | | | |
| North America | $ | 902,478 |
| | $ | 741,334 |
| | $ | 673,944 |
|
| International | 774,693 |
| | 539,915 |
| | 393,420 |
|
| Direct revenue | 1,677,171 |
| | 1,281,249 |
| | 1,067,364 |
|
| Indirect revenue (principally advertising revenue) | 52,679 |
| | 49,412 |
| | 50,746 |
|
| Total Match Group revenue | $ | 1,729,850 |
| | $ | 1,330,661 |
| | $ | 1,118,110 |
|
| | | | | | |
| Supplemental information on Direct revenue | | | | | |
| Tinder | $ | 805,316 |
| | $ | 403,216 |
| | $ | 168,522 |
|
| Other brands | 871,855 |
| | 878,033 |
| | 898,842 |
|
| Total Direct revenue | $ | 1,677,171 |
| | $ | 1,281,249 |
| | $ | 1,067,364 |
|
| | | | | | |
| ANGI Homeservices | | | | | |
| Marketplace: | | | | | |
| Consumer connection revenue | $ | 704,341 |
| | $ | 521,481 |
| | $ | 382,466 |
|
| Membership subscription revenue | 66,214 |
| | 56,135 |
| | 43,573 |
|
| Other revenue | 3,940 |
| | 3,798 |
| | 2,827 |
|
| Marketplace revenue | 774,495 |
| | 581,414 |
| | 428,866 |
|
| Advertising and other revenue | 287,676 |
| | 97,483 |
| | 32,981 |
|
| North America | 1,062,171 |
| | 678,897 |
| | 461,847 |
|
| Consumer connection revenue | 50,913 |
| | 40,009 |
| | 28,124 |
|
| Membership subscription revenue | 17,362 |
| | 16,596 |
| | 7,936 |
|
| Advertising and other revenue | 1,795 |
| | 884 |
| | 983 |
|
| Europe | 70,070 |
| | 57,489 |
| | 37,043 |
|
| Total ANGI Homeservices revenue | $ | 1,132,241 |
| | $ | 736,386 |
| | $ | 498,890 |
|
| | | | | | |
| Vimeo | | | | | |
| Platform revenue | $ | 146,665 |
| | $ | 99,650 |
| | $ | 78,805 |
|
| Hardware revenue | 12,976 |
| | 3,682 |
| | — |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Total Vimeo revenue | $ | 159,641 |
| | $ | 103,332 |
| | $ | 78,805 |
|
| | | | | | |
| Dotdash | | | | | |
| Advertising revenue | $ | 113,014 |
| | $ | 81,948 |
| | $ | 76,099 |
|
| Affiliate commerce commission revenue | 14,458 |
| | 7,372 |
| | 1,685 |
|
| Other revenue | 3,519 |
| | 1,570 |
| | 129 |
|
| Total Dotdash revenue | $ | 130,991 |
| | $ | 90,890 |
| | $ | 77,913 |
|
| | | | | | |
| Applications | | | | | |
| Desktop | | | | | |
| Advertising revenue: | | | | | |
| Google advertising revenue | $ | 426,964 |
| | $ | 480,774 |
| | $ | 523,335 |
|
| Other | 10,992 |
| | 6,762 |
| | 10,037 |
|
| Advertising revenue | 437,956 |
| | 487,536 |
| | 533,372 |
|
| Subscription and other revenue | 20,815 |
| | 34,613 |
| | 29,943 |
|
| Total Desktop | 458,771 |
| | 522,149 |
| | 563,315 |
|
| Mosaic Group | | | | | |
| Subscription and other revenue | 104,975 |
| | 27,980 |
| | 21,787 |
|
| Advertising revenue | 18,541 |
| | 27,869 |
| | 19,038 |
|
| Total Mosaic Group | 123,516 |
| | 55,849 |
| | 40,825 |
|
| Total Applications revenue | $ | 582,287 |
| | $ | 577,998 |
| | $ | 604,140 |
|
| | | | | | |
| Emerging & Other | | | | | |
| Advertising revenue: | | | | | |
| Google advertising revenue | $ | 357,752 |
| | $ | 225,576 |
| | $ | 269,192 |
|
| Other | 66,733 |
| | 53,911 |
| | 75,008 |
|
| Advertising revenue | 424,485 |
| | 279,487 |
| | 344,200 |
|
| Other revenue | 103,765 |
| | 169,497 |
| | 160,329 |
|
| Test preparation revenue | — |
| | 19,605 |
| | 86,517 |
|
| Product revenue | — |
| | — |
| | 171,563 |
|
| Total Emerging & Other revenue | $ | 528,250 |
| | $ | 468,589 |
| | $ | 762,609 |
|
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Revenue | | | | | | | | | | |
| United States | $ | 2,318,976 |
| | $ | 2,376,035 |
| | $ | 2,146,189 |
| $ | 2,824,928 |
| | $ | 2,323,050 |
| | $ | 2,318,976 |
|
| All other countries | 820,906 |
| | 854,898 |
| | 963,358 |
| 1,437,964 |
| | 984,189 |
| | 820,906 |
|
| Total | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
| $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Long-lived assets (excluding goodwill and intangible assets) | | | | | | |
| United States | $ | 281,725 |
| | $ | 279,913 |
| $ | 289,756 |
| | $ | 286,541 |
|
| All other countries | 24,523 |
| | 22,904 |
| 29,044 |
| | 28,629 |
|
| Total | $ | 306,248 |
| | $ | 302,817 |
| $ | 318,800 |
| | $ | 315,170 |
|
The following tables present operating income (loss) and Adjusted EBITDA by reportable segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Operating Income (Loss): | | | | | |
| Match Group | $ | 553,294 |
| | $ | 360,517 |
| | $ | 315,549 |
|
| ANGI Homeservices | 63,906 |
| | (149,176 | ) | | 25,363 |
|
| Vimeo | (35,594 | ) | | (27,328 | ) | | (25,350 | ) |
| Dotdash | 18,778 |
| | (15,694 | ) | | (248,705 | ) |
| Applications | 94,834 |
| | 130,176 |
| | 109,663 |
|
| Emerging & Other | 29,964 |
| | 17,412 |
| | (99,696 | ) |
| Corporate | (160,043 | ) | | (127,441 | ) | | (109,449 | ) |
| Total | $ | 565,139 |
| | $ | 188,466 |
| | $ | (32,625 | ) |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
Adjusted EBITDA:(a) | | | | | |
| Match Group | $ | 653,931 |
| | $ | 468,941 |
| | $ | 403,380 |
|
| ANGI Homeservices | $ | 247,506 |
| | $ | 37,858 |
| | $ | 45,851 |
|
| Vimeo | $ | (28,045 | ) | | $ | (23,607 | ) | | $ | (20,281 | ) |
| Dotdash | $ | 21,384 |
| | $ | (2,763 | ) | | $ | (16,846 | ) |
| Applications | $ | 131,837 |
| | $ | 136,757 |
| | $ | 132,276 |
|
| Emerging & Other | $ | 36,178 |
| | $ | 25,862 |
| | $ | 10,111 |
|
| Corporate | $ | (74,017 | ) | | $ | (67,755 | ) | | $ | (53,272 | ) |
(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 businesses, and this measure is one of the primary metrics on which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC's statement of operations of certain expenses.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables reconcile operating income (loss) for the Company's reportable segments and net (loss) earnings attributable to IAC shareholders to Adjusted EBITDA:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 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 | $ | 305,908 |
| | $ | 52,988 |
| | $ | 31,227 |
| | $ | 23,029 |
| | $ | (9,197 | ) | | $ | — |
| | $ | 403,955 |
|
| HomeAdvisor | 35,343 |
| | 1,631 |
| | 8,419 |
| | 3,153 |
| | — |
| | — |
| | 48,546 |
|
| Video | (27,656 | ) | | 640 |
| | 1,785 |
| | 4,176 |
| | (192 | ) | | — |
| | (21,247 | ) |
| Applications | 109,663 |
| | — |
| | 5,095 |
| | 5,483 |
| | 12,035 |
| | — |
| | 132,276 |
|
| Publishing | (334,417 | ) | | — |
| | 8,531 |
| | 42,948 |
| | — |
| | 275,367 |
| | (7,571 | ) |
| Other | (2,037 | ) | | — |
| | 2,718 |
| | 637 |
| | (91 | ) | | — |
| | 1,227 |
|
| Corporate | (119,429 | ) | | 49,561 |
| | 13,901 |
| | — |
| | — |
| | — |
| | (55,967 | ) |
| Total | $ | (32,625 | ) | | $ | 104,820 |
| | $ | 71,676 |
| | $ | 79,426 |
| | $ | 2,555 |
| | $ | 275,367 |
| | $ | 501,219 |
|
| Interest expense | (109,110 | ) | | | | | | | | | | | | |
| Other income, net | 60,461 |
| | | | | | | | | | | | |
| Loss from continuing operations before income taxes | (81,274 | ) | | | | | | | | | | | | |
| Income tax benefit | 64,934 |
| | | | | | | | | | | | |
| Loss from continuing operations | (16,340 | ) | | | | | | | | | | | | |
| Earnings from discontinued operations, net of tax | 189 |
| | | | | | | | | | | | |
| Net loss | (16,151 | ) | | | | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (25,129 | ) | | | | | | | | | | | | |
| Net loss attributable to IAC shareholders | $ | (41,280 | ) | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Operating
Income
(Loss) | | Stock-Based
Compensation
Expense | | Depreciation | | Amortization
of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Adjusted EBITDA |
| | (In thousands) |
| Match Group | $ | 553,294 |
| | $ | 66,031 |
| | $ | 32,968 |
| | $ | 1,318 |
| | $ | 320 |
| | $ | 653,931 |
|
| ANGI Homeservices | 63,906 |
| | $ | 97,078 |
| | $ | 24,310 |
| | $ | 62,212 |
| | $ | — |
| | $ | 247,506 |
|
| Vimeo | (35,594 | ) | | $ | — |
| | $ | 1,200 |
| | $ | 6,349 |
| | $ | — |
| | $ | (28,045 | ) |
| Dotdash | 18,778 |
| | $ | — |
| | $ | 969 |
| | $ | 1,637 |
| | $ | — |
| | $ | 21,384 |
|
| Applications | 94,834 |
| | $ | — |
| | $ | 2,601 |
| | $ | 33,266 |
| | $ | 1,136 |
| | $ | 131,837 |
|
| Emerging & Other | 29,964 |
| | $ | 919 |
| | $ | 1,678 |
| | $ | 3,617 |
| | $ | — |
| | $ | 36,178 |
|
| Corporate | (160,043 | ) | | $ | 74,392 |
| | $ | 11,634 |
| | $ | — |
| | $ | — |
| | $ | (74,017 | ) |
| Total | 565,139 |
| | | | | | | | | | |
| Interest expense | (109,327 | ) | | | | | | | | | | |
| Other income, net | 305,746 |
| | | | | | | | | | |
| Earnings before income taxes | 761,558 |
| | | | | | | | | | |
| Income tax provision | (3,811 | ) | | | | | | | | | | |
| Net earnings | 757,747 |
| | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (130,786 | ) | | | | | | | | | | |
| Net earnings attributable to IAC shareholders | $ | 626,961 |
| | | | | | | | | | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | 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 | $ | 193,556 |
| | $ | 50,083 |
| | $ | 25,983 |
| | $ | 20,101 |
| | $ | (11,056 | ) | | $ | — |
| | $ | 278,667 |
|
| HomeAdvisor | 6,452 |
| | 1,649 |
| | 6,593 |
| | 3,835 |
| | — |
| | — |
| | 18,529 |
|
| Video | (38,756 | ) | | 360 |
| | 1,091 |
| | 1,558 |
| | (2,637 | ) | | — |
| | (38,384 | ) |
| Applications | 175,145 |
| | — |
| | 4,617 |
| | 6,264 |
| | (1,768 | ) | | — |
| | 184,258 |
|
| Publishing | (26,692 | ) | | — |
| | 9,577 |
| | 104,903 |
| | — |
| | — |
| | 87,788 |
|
| Other | (9,186 | ) | | — |
| | 2,460 |
| | 3,291 |
| | — |
| | 14,056 |
| | 10,621 |
|
| Corporate | (120,931 | ) | | 53,358 |
| | 11,884 |
| | — |
| | — |
| | — |
| | (55,689 | ) |
| Total | 179,588 |
| | $ | 105,450 |
| | $ | 62,205 |
| | $ | 139,952 |
| | $ | (15,461 | ) | | $ | 14,056 |
| | $ | 485,790 |
|
| Interest expense | (73,636 | ) | | | | | | | | | | | | |
| Other income, net | 36,921 |
| | | | | | | | | | | | |
| Earnings from continuing operations before income taxes | 142,873 |
| | | | | | | | | | | | |
| Income tax provision | (29,516 | ) | | | | | | | | | | | | |
| Earnings from continuing operations | 113,357 |
| | | | | | | | | | | | |
| Earnings from discontinued operations, net of tax | 17 |
| | | | | | | | | | | | |
| Net earnings | 113,374 |
| | | | | | | | | | | | |
| Net loss attributable to noncontrolling interests | 6,098 |
| | | | | | | | | | | | |
| Net earnings attributable to IAC shareholders | $ | 119,472 |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Adjusted EBITDA |
| | (In thousands) |
| Match Group | $ | 360,517 |
| | $ | 69,090 |
| | $ | 32,613 |
| | $ | 1,468 |
| | $ | 5,253 |
| | $ | 468,941 |
|
| ANGI Homeservices | (149,176 | ) | | $ | 149,230 |
| | $ | 14,543 |
| | $ | 23,261 |
| | $ | — |
| | $ | 37,858 |
|
| Vimeo | (27,328 | ) | | $ | — |
| | $ | 1,408 |
| | $ | 2,313 |
| | $ | — |
| | $ | (23,607 | ) |
| Dotdash | (15,694 | ) | | $ | — |
| | $ | 2,255 |
| | $ | 10,676 |
| | $ | — |
| | $ | (2,763 | ) |
| Applications | 130,176 |
| | $ | — |
| | $ | 3,863 |
| | $ | 2,170 |
| | 548 |
| — |
| $ | 136,757 |
|
| Emerging & Other | 17,412 |
| | $ | 2,130 |
| | $ | 4,065 |
| | $ | 2,255 |
| | $ | — |
| | $ | 25,862 |
|
| Corporate | (127,441 | ) | | $ | 44,168 |
| | $ | 15,518 |
| | $ | — |
| | $ | — |
| | $ | (67,755 | ) |
| Total | 188,466 |
| | | | | | | | | | |
| Interest expense | (105,295 | ) | | | | | | | | | | |
| Other expense, net | (16,213 | ) | | | | | | | | | | |
| Earnings before income taxes | 66,958 |
| | | | | | | | | | |
| Income tax benefit | 291,050 |
| | | | | | | | | | |
| Net earnings | 358,008 |
| | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (53,084 | ) | | | | | | | | | | |
| Net earnings attributable to IAC shareholders | $ | 304,924 |
| | | | | | | | | | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2014 |
| | Operating
Income
(Loss) | | Stock-Based
Compensation
Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Adjusted EBITDA |
| | (In thousands) |
| Match Group | $ | 228,567 |
| | $ | 20,851 |
| | $ | 25,547 |
| | $ | 11,395 |
| | $ | (12,912 | ) | | $ | 273,448 |
|
| HomeAdvisor | 1,061 |
| | 558 |
| | 6,520 |
| | 9,562 |
| | — |
| | 17,701 |
|
| Video | (43,346 | ) | | 647 |
| | 899 |
| | 2,099 |
| | (215 | ) | | (39,916 | ) |
| Applications | 178,960 |
| | — |
| | 4,385 |
| | 2,521 |
| | 326 |
| | 186,192 |
|
| Publishing | 110,523 |
| | — |
| | 11,856 |
| | 28,581 |
| | — |
| | 150,960 |
|
| Other | 8,108 |
| | — |
| | 1,824 |
| | 3,768 |
| | (566 | ) | | 13,134 |
|
| Corporate | (105,146 | ) | | 37,578 |
| | 10,125 |
| | — |
| | — |
| | (57,443 | ) |
| Total | 378,727 |
| | $ | 59,634 |
| | $ | 61,156 |
| | $ | 57,926 |
| | $ | (13,367 | ) | | $ | 544,076 |
|
| Interest expense | (56,314 | ) | | | | | | | | | | |
| Other expense, net | (52,484 | ) | | | | | | | | | | |
| Earnings from continuing operations before income taxes | 269,929 |
| | | | | | | | | | |
| Income tax provision | (35,372 | ) | | | | | | | | | | |
| Earnings from continuing operations | 234,557 |
| | | | | | | | | | |
| Earnings from discontinued operations, net of tax | 174,673 |
| | | | | | | | | | |
| Net earnings | 409,230 |
| | | | | | | | | | |
| Net loss attributable to noncontrolling interests | 5,643 |
| | | | | | | | | | |
| Net earnings attributable to IAC shareholders | $ | 414,873 |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 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 | $ | 315,549 |
| | $ | 52,370 |
| | $ | 27,726 |
| | $ | 16,932 |
| | $ | (9,197 | ) | | $ | — |
| | $ | 403,380 |
|
| ANGI Homeservices | 25,363 |
| | $ | 8,916 |
| | $ | 8,419 |
| | $ | 3,153 |
| | $ | — |
| | $ | — |
| | $ | 45,851 |
|
| Vimeo | (25,350 | ) | | $ | — |
| | $ | 1,085 |
| | $ | 4,176 |
| | $ | (192 | ) | | $ | — |
| | $ | (20,281 | ) |
| Dotdash | (248,705 | ) | | $ | — |
| | $ | 2,775 |
| | $ | 30,754 |
| | $ | — |
| | $ | 198,330 |
| | $ | (16,846 | ) |
| Applications | 109,663 |
| | $ | — |
| | $ | 5,095 |
| | $ | 5,483 |
| | $ | 12,035 |
| | $ | — |
| | $ | 132,276 |
|
| Emerging & Other | (99,696 | ) | | $ | 1,258 |
| | $ | 12,675 |
| | $ | 18,928 |
| | $ | (91 | ) | | $ | 77,037 |
| | $ | 10,111 |
|
| Corporate | (109,449 | ) | | $ | 42,276 |
| | $ | 13,901 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (53,272 | ) |
| Total | (32,625 | ) | | | | | | | | | | | | |
| Interest expense | (109,110 | ) | | | | | | | | | | | | |
| Other income, net | 60,650 |
| | | | | | | | | | | | |
| Loss before income taxes | (81,085 | ) | | | | | | | | | | | | |
| Income tax benefit | 64,934 |
| | | | | | | | | | | | |
| Net loss | (16,151 | ) | | | | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (25,129 | ) | | | | | | | | | | | | |
| Net loss attributable to IAC shareholders | $ | (41,280 | ) | | | | | | | | | | | | |
The following tables reconcile segment assets to total assets:assets by reportable segment:
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Segment Assets | | Goodwill | | Indefinite-Lived
Intangible Assets | | Definite-Lived
Intangible Assets | | Total Assets |
| | (In thousands) |
| Match Group | $ | 509,936 |
| | $ | 1,280,960 |
| | $ | 238,361 |
| | $ | 10,809 |
| | $ | 2,040,066 |
|
| HomeAdvisor | 97,751 |
| | 170,611 |
| | 4,884 |
| | 5,908 |
| | 279,154 |
|
| Video | 230,269 |
| | 25,239 |
| | 1,800 |
| | 4,167 |
| | 261,475 |
|
| Applications | 109,019 |
| | 447,242 |
| | 60,600 |
| | 2,481 |
| | 619,342 |
|
| Publishing | 409,838 |
| | — |
| | 15,000 |
| | 11,441 |
| | 436,279 |
|
| Other | — |
| | — |
| | — |
| | — |
| | — |
|
Corporate(c) | 1,009,557 |
| | — |
| | — |
| | — |
| | 1,009,557 |
|
| Total | $ | 2,366,370 |
| | $ | 1,924,052 |
| | $ | 320,645 |
| | $ | 34,806 |
| | $ | 4,645,873 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Segment Assets (b) | | Property and Equipment, Net | | Goodwill | | Indefinite-Lived
Intangible
Assets | | Definite-Lived
Intangible
Assets, Net | | Total Assets |
| | (In thousands) |
| Match Group | $ | 377,965 |
| | $ | 58,351 |
| | $ | 1,245,013 |
| | $ | 230,684 |
| | $ | 6,956 |
| | $ | 1,918,969 |
|
| ANGI Homeservices | 497,327 |
| | 70,859 |
| | 892,800 |
| | 171,486 |
| | 132,809 |
| | 1,765,281 |
|
| Vimeo | 33,568 |
| | 1,014 |
| | 77,152 |
| | — |
| | 9,442 |
| | 121,176 |
|
| Dotdash | 39,276 |
| | 3,229 |
| | — |
| | 13,500 |
| | 1,514 |
| | 57,519 |
|
| Applications | 153,781 |
| | 4,867 |
| | 504,892 |
| | 39,463 |
| | 22,447 |
| | 725,450 |
|
| Emerging & Other | 95,858 |
| | 1,638 |
| | 7,002 |
| | 2,971 |
| | 150 |
| | 107,619 |
|
Corporate (c) | 1,934,943 |
| | 178,842 |
| | — |
| | — |
| | — |
| | 2,113,785 |
|
| Total | $ | 3,132,718 |
| | $ | 318,800 |
| | $ | 2,726,859 |
| | $ | 458,104 |
| | $ | 173,318 |
| | 6,809,799 |
|
Add: Deferred tax assets (d) | | | | | | | | | | | 64,786 |
|
| Total Assets | | | | | | | | | | | $ | 6,874,585 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2015 |
| | Segment Assets | | Goodwill | | Indefinite-Lived Intangible Assets | | Definite-Lived Intangible Assets | | Total Assets |
| | (In thousands) |
| Match Group | $ | 330,736 |
| | $ | 1,293,109 |
| | $ | 243,697 |
| | $ | 32,711 |
| | $ | 1,900,253 |
|
| HomeAdvisor | 32,116 |
| | 150,251 |
| | 600 |
| | 5,727 |
| | 188,694 |
|
| Video | 90,671 |
| | 15,590 |
| | 1,800 |
| | 3,343 |
| | 111,404 |
|
| Applications | 108,997 |
| | 447,242 |
| | 60,600 |
| | 7,964 |
| | 624,803 |
|
| Publishing | 391,450 |
| | 277,192 |
| | 59,805 |
| | 7,849 |
| | 736,296 |
|
| Other | 64,550 |
| | 61,980 |
| | 13,635 |
| | 3,097 |
| | 143,262 |
|
Corporate(c) | 1,483,979 |
| | — |
| | — |
| | — |
| | 1,483,979 |
|
| Total | $ | 2,502,499 |
| | $ | 2,245,364 |
| | $ | 380,137 |
| | $ | 60,691 |
| | $ | 5,188,691 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Segment Assets (b) | | Property and Equipment, Net | | Goodwill | | Indefinite-Lived
Intangible
Assets | | Definite-Lived
Intangible
Assets, Net | | Total Assets |
| | (In thousands) |
| Match Group | $ | 467,338 |
| | $ | 61,620 |
| | $ | 1,247,899 |
| | $ | 228,296 |
| | $ | 2,049 |
| | $ | 2,007,202 |
|
| ANGI Homeservices | 264,450 |
| | 53,292 |
| | 768,317 |
| | 153,447 |
| | 175,124 |
| | 1,414,630 |
|
| Vimeo | 30,507 |
| | 1,972 |
| | 77,303 |
| | — |
| | 15,655 |
| | 125,437 |
|
| Dotdash | 27,190 |
| | 4,077 |
| | — |
| | 6,000 |
| | 3,152 |
| | 40,419 |
|
| Applications | 345,532 |
| | 7,004 |
| | 447,242 |
| | 60,600 |
| | 847 |
| | 861,225 |
|
| Emerging & Other | 255,107 |
| | 2,377 |
| | 18,305 |
| | 10,800 |
| | 7,767 |
| | 294,356 |
|
Corporate (c) | 873,392 |
| | 184,828 |
| | — |
| | — |
| | — |
| | 1,058,220 |
|
| Total | $ | 2,263,516 |
| | $ | 315,170 |
| | $ | 2,559,066 |
| | $ | 459,143 |
| | $ | 204,594 |
| | 5,801,489 |
|
Add: Deferred tax assets (d) | | | | | | | | | | | 66,321 |
|
| Total Assets | | | | | | | | | | | $ | 5,867,810 |
|
(b) Consistent with the Company's primary metric (described in (a) above), the Company excludes, if applicable, property and equipment, goodwill and intangible assets from the measure of segment assets presented above.
| |
| (c) | Corporate assets consist primarily of cash and cash equivalents, marketable securities and IAC's headquarters building. |
| |
| (d) | Total segment assets differ from total assets on a consolidated basis as a result of unallocated deferred tax assets. |
The following table presents capital expenditures by reportable segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Capital expenditures: | | | | | |
| Match Group | $ | 30,954 |
| | $ | 28,833 |
| | $ | 46,098 |
|
| ANGI Homeservices | 46,976 |
| | 26,837 |
| | 16,660 |
|
| Vimeo | 209 |
| | 109 |
| | 1,959 |
|
| Dotdash | 102 |
| | 825 |
| | 1,671 |
|
| Applications | 111 |
| | 227 |
| | 1,196 |
|
| Emerging & Other | 1,119 |
| | 852 |
| | 6,683 |
|
| Corporate | 6,163 |
| | 17,840 |
| | 3,772 |
|
| Total | $ | 85,634 |
| | $ | 75,523 |
| | $ | 78,039 |
|
NOTE 15—13—COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases land, office space, data center facilities and equipment used in connection with its operations under various operating leases, many of which contain escalation clauses. The Company is also committed to pay a portion of the related operating expenses under a data centercertain lease agreement.agreements. These operating expenses are not included in the table below.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum payments under operating lease agreements are as follows:
| | | Years Ending December 31, | | (In thousands) | | (In thousands) |
| 2017 | | $ | 31,834 |
| |
| 2018 | | 31,661 |
| |
| 2019 | | 24,316 |
| | $ | 38,770 |
|
| 2020 | | 18,523 |
| | 46,440 |
|
| 2021 | | 13,239 |
| | 40,998 |
|
| 2022 | | | 34,066 |
|
| 2023 | | | 30,567 |
|
| Thereafter | | 189,070 |
| | 255,563 |
|
| Total | | $ | 308,643 |
| | $ | 446,404 |
|
Expenses charged to operations under these agreements are $49.3$42.0 million, $39.4$37.9 million and $41.2$50.8 million for the years ended December 31, 2016, 20152018, 2017 and 2014,2016, respectively.
The Company's three most significant operating lease is a seventy-seven year land leaseleases are for IAC's headquarters building in New York City that expires in 2081, ANGI's call center in New York that expires in 2028 and approximates 57%ANGI's headquarters in Denver, Colorado that expires in 2029, which collectively approximate 61% of the future minimum payments due under all operating lease agreements in the table above.
The Company also has funding commitments that could potentially require its performance in the event of demands by third parties or contingent events as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Amount of Commitment Expiration Per Period | Amount of Commitment Expiration Per Period |
| | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | Total Amounts Committed | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | Total Amounts Committed |
| | (In thousands) | (In thousands) |
| Purchase obligations | $ | 10,581 |
| | $ | 10,000 |
| | $ | — |
| | $ | — |
| | $ | 20,581 |
| $ | 40,428 |
| | $ | 23,897 |
| | $ | — |
| | $ | — |
| | $ | 64,325 |
|
| Letters of credit and surety bonds | 768 |
| | 63 |
| | — |
| | 1,437 |
| | 2,268 |
| 449 |
| | — |
| | — |
| | 2,272 |
| | 2,721 |
|
| Total commercial commitments | $ | 11,349 |
| | $ | 10,063 |
| | $ | — |
| | $ | 1,437 |
| | $ | 22,849 |
| $ | 40,877 |
| | $ | 23,897 |
| | $ | — |
| | $ | 2,272 |
| | $ | 67,046 |
|
The purchase obligations principally include a web hosting commitment.commitments. The letters of credit primarily support the Company's casualty insurance program.
NOTE 16—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"Note 3—Income Taxes"Taxes" for additional information related to income tax contingencies. NOTE 17—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Disclosure of Non-Cash Transactions:
The Company recorded acquisition-related contingent consideration liabilities of $0.2 million, $27.4 millionOn August 14, 2018, ten then-current and $8.8 million during the years ended December 31, 2016, 2015 and 2014, respectively, in connection with various acquisitions. See "Note 8—Fair Value Measurements and Financial Instruments" for additional information on contingent consideration arrangements.
On November 16, 2015, Match Group exchanged $445.3 million of 2012 Senior Notes for $445.2 millionformer employees of Match Group, Senior Notes. LLC or Tinder, Inc. ("Tinder"), an operating business of Match Group, filed a lawsuit in New York state court against IAC and Match Group. See "Note 9—Long-term Debt"Sean Rad et al. v. IAC/InterActiveCorp and Match Group, Inc., No. 654038/2018 (Supreme Court, New York County). The complaint alleges that in 2017, the defendants: (i) wrongfully interfered with a contractually established process for additional information on the note exchange.independent valuation of Tinder
Supplemental Disclosure of Cash Flow Information:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Cash paid (received) during the year for: | | | | | |
| Interest | $ | 107,360 |
| | $ | 51,666 |
| | $ | 54,027 |
|
| Income tax payments | 69,103 |
| | 70,762 |
| | 63,521 |
|
| Income tax refunds | (23,877 | ) | | (5,619 | ) | | (10,477 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by certain investment banks, resulting in a substantial undervaluation of Tinder and a consequent underpayment to the plaintiffs upon exercise of their Tinder stock options, and (ii) then wrongfully merged Tinder into Match Group, thereby depriving one of the plaintiffs (Mr. Rad) of his contractual right to later valuations of Tinder on a stand-alone basis. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, interference with contractual relations (as against Match Group only), and interference with prospective economic advantage, and seeks compensatory damages in the amount of at least $2 billion, as well as punitive damages. On August 31, 2018, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. On October 9, 2018, the defendants filed a motion to dismiss the complaint on various grounds, including that the 2017 valuation of Tinder by the investment banks was an expert determination any challenge to which is both time-barred under applicable law and available only on narrow substantive grounds that the plaintiffs have not pleaded in their complaint. On December 17, 2018, plaintiffs filed their opposition to the motion to dismiss. On January 15, 2019, the defendants filed their reply brief. A hearing on the motion is scheduled for March 6, 2019, and discovery in the case is proceeding. IAC and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
NOTE 18—14—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Disclosure of Non-Cash Transactions:
The Company recorded acquisition-related contingent consideration liabilities of $25.5 million and $0.2 million during the years ended December 31, 2018 and 2016, respectively, in connection with various acquisitions. There were no acquisition-related contingent consideration liabilities recorded for the year ended December 31, 2017. See "Note 6—Financial Instruments" for additional information on contingent consideration arrangements. On October 19, 2018, ANGI issued 8.6 million shares of its Class A common stock valued at $165.8 million in connection with the acquisition of Handy.
On September 29, 2017, ANGI issued 61.3 million shares of its Class A common stock valued at $763.7 million in connection with the Combination.
Supplemental Disclosure of Cash Flow Information:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Cash paid (received) during the year for: | | | | | |
| Interest | $ | 90,485 |
| | $ | 92,461 |
| | $ | 107,360 |
|
| Income tax payments | 45,154 |
| | 35,598 |
| | 69,103 |
|
| Income tax refunds | (33,698 | ) | | (42,025 | ) | | (23,877 | ) |
NOTE 15—RELATED PARTY TRANSACTIONS
IAC and Match Group:MTCH:
IAC and Match Group,MTCH, in connection with Match Group'sMTCH's IPO, entered into the following agreements:
A Master Transaction Agreement, under which Match GroupMTCH agrees to assume all of the assets and liabilities related to its business and agrees to indemnify IAC against any losses arising out of any breach by Match GroupMTCH of the Master Transaction Agreement or other IPO related agreements;
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An Investor Rights Agreement that provides IAC with (i) specified registration and other rights relating to shares of Match Group'sMTCH common stock and (ii) anti-dilution rights with respect to Match Group'sMTCH common stock;
An Employee Matters Agreement, which governs the respective rights, responsibilities and obligations of IAC and Match GroupMTCH after the IPO with respect to a range of compensation and benefit issues;
A Tax Sharing Agreement, which governs the respective rights, responsibilities and obligations of IAC and Match GroupMTCH with respect to tax liabilities and benefits, entitlement to refunds, preparation of tax returns, tax contests and other tax matters regarding U.S. federal, state, local and foreign income taxes; and
A Services Agreement, under which IAC has agreed to provide a range of services to Match Group,MTCH, including, among others, (i) assistance with certain legal, finance, internal audit, treasury, information technology support, insurance and tax affairs, including assistance with certain public company reporting obligations; (ii) payroll processing services; (iii) tax compliance services; and (iv) such other services as to which IAC and Match GroupMTCH may agree, and Match GroupMTCH agrees to provide IAC informational technology services and such other services as to which IAC and Match GroupMTCH may agree.
ForDuring the yearyears ended December 31, 2018, 2017 and 2016, 3.0 million, 11.9 million and 1.0 million shares, respectively, of Match GroupMTCH common stock were issued to IAC pursuant to the employee matters agreement; 2.5 million, 11.3 million and 0.5 million, respectively, of which were issued as reimbursement for shares of IAC common stock issued in connection with the exercise and settlement of MTCH tandem stock options and equity awards denominated in shares of a subsidiary of Match Group;MTCH, respectively; and 0.5 million, 0.6 million and 0.4 million, respectively, of which were issued as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by Match GroupMTCH employees.
For the yearyears ended December 31, 2018, 2017 and 2016, and for the period from the date of the IPO through December 31, 2015, Match GroupMTCH was charged $11.8$7.6 million, $9.9 million and $0.7$11.8 million, respectively, by the Company for services rendered pursuant to a services agreement. Included in these amounts are $5.2 million, $5.1 million and $4.3 million, respectively, for leasing of office space for certain of MTCH's businesses at properties owned by IAC. These amounts were paid in full by Match GroupMTCH at December 31, 20162018, 2017 and 2015,2016, respectively.
At December 31, 2016, Match Group2017, MTCH had a tax receivable of $9.0$7.3 million due from the Company pursuant to the tax sharing agreement. PaymentsRefunds made by the Company during 2018 and 2017 pursuant to this agreement were $7.0 million and $10.9 million, respectively. There were no outstanding receivables or payables pursuant to the tax sharing agreement as of December 31, 2018.
In December 2017, certain international subsidiaries of MTCH agreed to sell NOLs that were not expected to be utilized to an IAC subsidiary for $0.9 million.
IAC and ANGI:
IAC and ANGI, in connection with the Combination, entered into the following agreements:
A Contribution Agreement under which the Company separated its HomeAdvisor business from its other businesses and caused the HomeAdvisor business to be transferred to ANGI prior to the Combination. Under the Contribution Agreement, ANGI agrees to indemnify IAC against any losses arising out of any breach by ANGI of the Contribution Agreement;
An Investor Rights Agreement that provides IAC with (i) specified registration and other rights relating to shares of ANGI common stock owned by IAC; (ii) anti-dilution rights with respect to ANGI common stock; and (iii) specified board matters with respect to designation of ANGI directors;
A Services Agreement, under which IAC has agreed to provide a range of services to ANGI, including, among others, (i) assistance with certain legal, M&A, human resources, finance, risk management, internal audit and treasury functions, health and wellness, information security services and insurance and tax affairs, including assistance with certain public company and unclaimed property reporting obligations; (ii) accounting, controllership and payroll
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
processing services; (iii) investor relations services; (iv) tax compliance services; and (iv) such other services as to which IAC and ANGI may agree.
A Tax Sharing Agreement, which governs the respective rights, responsibilities and obligations of IAC and ANGI with respect to tax matters, including taxes attributable to ANGI, entitlement to refunds, allocation of tax attributes, preparation of tax returns, certain tax elections, control of tax contests and other tax matters regarding U.S. federal, state, local and foreign income taxes; and
An Employee Matters Agreement, which governs the respective rights, responsibilities and obligations of IAC and ANGI after the closing of the Combination with respect to a range of compensation and benefit issues.
Additionally, on September 29, 2017, the Company and ANGI entered into two intercompany notes (collectively referred to as "Intercompany Notes") to ANGI as follows: (i) a Payoff Intercompany Note, which provided the funds necessary to repay the outstanding balance under Angie's List's previously existing credit agreement, totaling $61.5 million; and (ii) a Working Capital Intercompany Note, which provided ANGI with $15 million for working capital purposes. These Intercompany Notes were repaid on November 1, 2017, with a portion of the proceeds from the ANGI Term Loan that were received on the same date.
For the years ended December 31, 2018 and for the period subsequent to the Combination through December 31, 2017, 0.9 million and 0.4 million shares, respectively, of ANGI Class B common stock were issued to IAC pursuant to the employee matters agreement as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by ANGI employees.
On October 10, 2018, IAC was issued 5.1 million shares of Class B common stock of ANGI pursuant to the post-closing adjustment provision of the Angie's List merger agreement.
For the years ended December 31, 2018 and for the period subsequent to the Combination through December 31, 2017, ANGI was charged $5.7 million and $1.7 million, respectively, by the Company for services rendered pursuant to the services agreement. At December 31, 2018 and 2017, the Company had a $0.1 million outstanding payable to ANGI and a $0.4 million receivable from ANGI, respectively, pursuant to the services agreement. In addition, ANGI had an outstanding payable due to IAC of $2.0 million at December 31, 2017 related primarily to transaction related costs incurred in connection with the Combination, which was paid in full during the first quarter of 2018. There were no comparable costs in 2018.
At December 31, 2018, ANGI had taxes payable of $12.1 million due to the Company pursuant to the tax sharing agreement. No payments were made to the Company during 20162018 pursuant to this agreement were $19.9 million.agreement.
IAC and Expedia:
Each of IAC and Expedia has a 50% ownership interest in two aircraftaircrafts that may be used by both companies. The Company and Expedia purchased an aircraft during the second quarter of these two2017 to replace a previously owned aircraft, during 2013.which was subsequently sold on February 13, 2018. The Company paid $25$17.4 million (50% of the total purchase price and refurbish costs) for its interest.interest in the new aircraft. Members of the aircrafts' flight crews are employed by an entity in which each of the Company and Expedia has a 50% ownership interest. The Company and Expedia have agreed to share costs relating to flight crew compensation and benefits pro-rata according to each company's respective usage of the aircraft, for which they are separately billed by the entity described above. The Company and Expedia are related parties since they are under common control, given that Mr. Diller serves as Chairman and Senior Executive of both IAC and Expedia. For the years ended December 31, 2016, 20152018, 2017 and 2014,2016, total payments made to this entity by the Company were not material.
NOTE 19—16—BENEFIT PLANS
IAC has a retirement savings plan in the United States that qualifies under Section 401(k) of the Internal Revenue Code. Under the IAC/InterActiveCorp Retirement Savings Plan ("the Plan"), participating employees may contribute up to 50% of
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
their pre-tax earnings, but not more than statutory limits. IAC contributes fifty cents for each dollar a participant contributes in this plan, with a maximum contribution of 3% of a participant's eligible earnings. Matching contributions for the Plan for the years ended December 31, 2018, 2017 and 2016 2015are $12.9 million, $11.1 million and 2014 are $10.0 million, $9.1 million and $7.5 million, respectively. Matching
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the Plan. An investment option in the Plan is IAC common stock, but neither participant nor matching contributions are required to be invested in IAC common stock. The increase in matching contributions in 20162018 and 20152017 are due primarily to an increase in participation in the Plan due to an increaseincreases in headcount. The increase in matching contributions in 2015 was further impacted by an increase in participation due to acquisitions.headcount from the Combination and continued corporate growth at ANGI, MTCH, Vimeo and Dotdash.
IAC also has or participates in various benefit plans, principally defined contribution plans, for its international employees. IAC's contributions for these plans for the years ended December 31, 2018, 2017 and 2016 2015 and 2014 are $2.1$3.4 million, $2.5 million and $2.5$2.1 million, respectively. The decreaseincrease in contributions in 2016 is2018 and 2017 were due, in part, to an increase in participation in the saleinternational plans due to an increase in headcount at MTCH and ANGI as a result of PriceRunner.continued business growth.
NOTE 20—17—CONSOLIDATED FINANCIAL STATEMENT DETAILS
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Other current assets: | | | | | | |
| Capitalized costs to obtain a contract with a customer | | $ | 69,817 |
| | $ | — |
|
| Prepaid expenses | | 55,586 |
| | 49,350 |
|
| Capitalized downloadable search toolbar costs, net | | 33,365 |
| | 31,588 |
|
| Income taxes receivable | $ | 41,352 |
| | $ | 26,793 |
| 10,132 |
| | 33,239 |
|
| Production costs | 39,763 |
| | 24,804 |
| 2,260 |
| | 18,570 |
|
| Prepaid expenses | 37,665 |
| | 40,091 |
| |
| Capitalized downloadable search toolbar costs, net | 28,737 |
| | 27,929 |
| |
| Other | 56,551 |
| | 54,669 |
| 57,093 |
| | 52,627 |
|
| Other current assets | $ | 204,068 |
| | $ | 174,286 |
| $ | 228,253 |
| | $ | 185,374 |
|
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Property and equipment, net: | | | | |
| Property and equipment, net of accumulated depreciation and amortization: | | | | |
| Buildings and leasehold improvements | $ | 247,451 |
| | $ | 235,545 |
| $ | 249,026 |
| | $ | 246,038 |
|
| Computer equipment and capitalized software | 259,464 |
| | 239,309 |
| 229,083 |
| | 218,529 |
|
| Furniture and other equipment | 93,002 |
| | 88,664 |
| 86,694 |
| | 88,930 |
|
| Projects in progress | 13,048 |
| | 18,676 |
| 29,204 |
| | 19,094 |
|
| Land | 5,117 |
| | 5,117 |
| 11,591 |
| | 14,390 |
|
| | 618,082 |
| | 587,311 |
| |
| Property and equipment | | 605,598 |
| | 586,981 |
|
| Accumulated depreciation and amortization | (311,834 | ) | | (284,494 | ) | (286,798 | ) | | (271,811 | ) |
| Property and equipment, net | $ | 306,248 |
| | $ | 302,817 |
| |
| Property and equipment, net of accumulated depreciation and amortization | | $ | 318,800 |
| | $ | 315,170 |
|
| | | | December 31, | December 31, |
| | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Accrued expenses and other current liabilities: | | | | | | |
| Accrued employee compensation and benefits | $ | 106,301 |
| | $ | 104,481 |
| $ | 137,583 |
| | $ | 108,431 |
|
| Accrued advertising expense | 68,916 |
| | 87,064 |
| 105,520 |
| | 96,445 |
|
| Other | 169,693 |
| | 191,706 |
| 191,783 |
| | 162,048 |
|
| Accrued expenses and other current liabilities | $ | 344,910 |
| | $ | 383,251 |
| $ | 434,886 |
| | $ | 366,924 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Revenue: | | | | | | | | | | |
| Service revenue | $ | 2,967,474 |
| | $ | 3,077,080 |
| | $ | 2,957,735 |
| $ | 4,249,227 |
| | $ | 3,302,937 |
| | $ | 2,967,474 |
|
| Product revenue | 172,408 |
| | 153,853 |
| | 151,812 |
| 13,665 |
| | 4,302 |
| | 172,408 |
|
| Revenue | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
| $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Cost of revenue: | | | | | | | | | | |
| Cost of service revenue | $ | 617,058 |
| | $ | 652,137 |
| | $ | 734,222 |
| $ | 898,736 |
| | $ | 647,226 |
| | $ | 617,058 |
|
| Cost of product revenue | 138,672 |
| | 126,024 |
| | 125,982 |
| 12,410 |
| | 3,782 |
| | 138,672 |
|
| Cost of revenue | $ | 755,730 |
| | $ | 778,161 |
| | $ | 860,204 |
| $ | 911,146 |
| | $ | 651,008 |
| | $ | 755,730 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Other income (expense), net | $ | 60,461 |
| | $ | 36,921 |
| | $ | (52,484 | ) |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Other income (expense), net | $ | 305,746 |
| | $ | (16,213 | ) | | $ | 60,650 |
|
Other income, net in 2016(a) includes2018 includes: $124.2 million of net unrealized gains related to certain equity investments that were adjusted to fair value in accordance with ASU No. 2016-01, which was adopted on January 1, 2018; $120.6 million in gains related to the sales of $37.5Dictionary.com, Electus, Felix and CityGrid; $30.4 million and $12.0of interest income; $27.9 million in realized gains related to the sale of ShoeBuycertain equity investments; and PriceRunner, respectively, $34.3$5.3 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound.
Other expense, net in 2017 includes: $16.8 million in net foreign currency exchange losses due primarily to the weakening of the dollar relative to the British Pound; $15.4 million expense related to the extinguishment of the 6.75% MTCH Senior Notes and repricing of the MTCH Term Loan; $13.0 million mark-to-market charge principally pertaining to a subsidiary denominated equity award held by a non-employee; $12.2 million in other-than-temporary impairment charges related to certain investments; $1.2 million expense related to the write-off of deferred financing costs associated with the repayment of the 4.875% Senior Notes; $34.9 million in realized gains related to the sale of certain investments; and $11.4 million of interest income.
Other income, net in 2016 includes: $37.5 million and $12.0 million in realized gains related to the sales of ShoeBuy and PriceRunner, respectively; $34.4 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound and Euro, interest income ofEuro; $5.1 million and aof interest income; $3.6 million gain related to the sale of marketablecertain equity securities, partially offset by ainvestments; $12.1 million non-cash charge of $12.1 million related to the write-off of a proportionate share of original issue discount and deferred financing costs associated with the repayment of $440 million of the Match GroupMTCH Term Loan, $10.0Loan; $10.7 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, a loss ofinvestments; $3.8 million loss related to the sale of ASKfm and aASKfm; $3.6 million loss on the 20124.75% and 20134.875% Senior Note redemptions and repurchases.
Other income, net in 2015 includedrepurchases; and $2.5 million mark-to-market charge principally pertaining to a gain of $34.3 million from a real estate transaction, $5.4 million in net foreign currency exchange gains and $4.3 million in interest income, partially offset by $6.7 million in other-than-temporary impairment charges related to certain cost method investments.
Other expense, net in 2014 included $66.6 million in other-than-temporary impairment charges related to certain cost method investments and a $4.2 million other-than-temporary impairment charge on one of oursubsidiary denominated equity method investments following the sale of a majority of the investee's assets, partially offsetaward held by a $19.4non-employee.
NOTE 18—TRANSACTION AND INTEGRATION RELATED COSTS IN CONNECTION WITH THE COMBINATION
During the years ended December 31, 2018 and 2017, the Company incurred $3.6 million gainand $44.1 million, respectively, in costs related to the saleCombination (including severance, retention, transaction and integration related costs), as well as deferred revenue write-offs of Urbanspoon, $4.4 million in interest income and $3.6 million in gains related to the sale of several long-term investments.
________________________
| |
(a) | PriceRunner was sold on March 18, 2016. PriceRunner's 2016 revenue, operating income and Adjusted EBITDA were $7.1 million, $2.2 million and $2.6 million, respectively. Included in PriceRunner's operating income were $0.3 million of amortization of intangibles and $0.1 million of depreciation. ASKfm was sold on June 30, 2016. ASKfm's 2016 revenue, operating loss and Adjusted EBITDA loss were $3.0 million, $4.9 million and $3.9 million, respectively. Included in ASKfm's operating loss were $0.5 million of amortization of intangibles and $0.5 million of depreciation. ShoeBuy was sold on December 30, 2016. ShoeBuy's 2016 revenue, operating loss and Adjusted EBITDA loss were $171.8 million, $4.2 million and $1.3 million, respectively. Included in ShoeBuy's operating loss were $2.7 million of depreciation and $0.3 million of amortization of intangibles. |
PriceRunner's full year 2015 revenue, operating income and Adjusted EBITDA were $32.3 million, $9.7$5.5 million and $13.0$7.8 million, respectively. Included in PriceRunner's operating income were $2.9 millionDuring the years ended December 31, 2018 and 2017, the
Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and Adjusted EBITDA loss were $151.8 million, $18.9Company also incurred $70.6 million and $2.4$122.1 million, respectively. Includedrespectively, in ShoeBuy's operating loss were $14.1 million of goodwill impairment, $2.0 million of depreciation and $0.4 million of amortization of intangibles.
NOTE 21—RESTRUCTURING CHARGES
Publishing and Applications segments
During 2016, the Company recognized significant declines in Publishing and Applications revenue duestock-based compensation expense related to the effectsmodification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the new Google contract, which was effective April 1, 2016, as well as declinesCombination, and the acceleration of certain converted equity awards resulting from certain other legacy businesses. In an effort to manage overall costs, the Company incurred restructuring charges throughout 2016 related to lease termination costs and severance. Forof Angie's List employees in connection with the year ended December 31, 2016,Combination.
See "Note 4—Business Combination" for additional information on the Company incurred $18.3 million in costs related to this restructure. Combination. A summary of the costs incurred, payments made and the related accruals for both the Publishing and Applications segments at December 31, 2016accrual is presented below.
See "Note 2—Summary of Significant Accounting Policies—Certain Risks and Concentrations" for additional information on revenue earned from Google. |
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Publishing | | Applications | | Total |
| | (In thousands) |
| Lease termination costs | $ | 8,172 |
| | $ | 100 |
| | $ | 8,272 |
|
| Severance | 7,461 |
| | 2,532 |
| | 9,993 |
|
| Total | $ | 15,633 |
| | $ | 2,632 |
| | $ | 18,265 |
|
|
| | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| Transaction and integration related costs | $ | 3,584 |
| | $ | 44,101 |
|
| Stock-based compensation expense | 70,645 |
| | 122,066 |
|
| Total | $ | 74,229 |
| | $ | 166,167 |
|
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Lease Termination Costs | | Severance | | Total |
| | (In thousands) |
| Publishing accrual: | | | | | |
| Charges incurred | $ | 8,172 |
| | $ | 7,461 |
| | $ | 15,633 |
|
| Payments made | (314 | ) | | (5,074 | ) | | (5,388 | ) |
| Publishing accrual as of December 31 | $ | 7,858 |
| | $ | 2,387 |
| | $ | 10,245 |
|
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| Accrual as of January 1 | $ | 8,480 |
| | $ | — |
|
| Costs incurred | 3,584 |
| | 44,101 |
|
| Payments made | (12,064 | ) | | (35,621 | ) |
| Accrual as of December 31 | $ | — |
| | $ | 8,480 |
|
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Lease Termination Costs | | Severance | | Total |
| | (In thousands) |
| Applications accrual: | | | | | |
| Charges incurred | $ | 100 |
| | $ | 2,532 |
| | $ | 2,632 |
|
| Payments made | — |
| | (1,933 | ) | | (1,933 | ) |
| Applications accrual as of December 31 | $ | 100 |
| | $ | 599 |
| | $ | 699 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The costs are allocated as follows in the accompanying consolidated statement of operations: |
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Publishing | | Applications | | Total |
| | (In thousands) |
| Cost of revenue | $ | 9,186 |
| | $ | 931 |
| | $ | 10,117 |
|
| Selling and marketing expense | 3,080 |
| | 593 |
| | 3,673 |
|
| General and administrative expense | 2,175 |
| | 351 |
| | 2,526 |
|
| Product development expense | 1,192 |
| | 757 |
| | 1,949 |
|
| Total | $ | 15,633 |
| | $ | 2,632 |
| | $ | 18,265 |
|
Match Group segment
In addition to the restructuring charges at the Publishing and Applications segments discussed above, the Match Group has been in the process of modernizing and streamlining its underlying Dating technology infrastructure that supports both its mobile and desktop platforms, as well as consolidating its European operations from seven principal locations down to three. The project is complete at December 31, 2016. For the year ended December 31, 2016, the Match Group incurred $4.9 million in costs related to this project, compared to $16.8 million for the year ended December 31, 2015. A summary of the costs incurred, payments made and the related accruals for the Match Group segment at December 31, 2016 and 2015 are presented below. |
| | | | | | | | | | | |
| | December 31, 2016 |
| | Severance | | Professional Fees & Other | | Total |
| | (In thousands) |
| Accrual as of January 1 | $ | 3,013 |
| | $ | 564 |
| | $ | 3,577 |
|
| Charges incurred | 345 |
| | 4,576 |
| | 4,921 |
|
| Payments made | (2,404 | ) | | (4,844 | ) | | (7,248 | ) |
| Accrual as of December 31 | $ | 954 |
| | $ | 296 |
| | $ | 1,250 |
|
|
| | | | | | | | | | | |
| | December 31, 2015 |
| | Severance | | Professional Fees & Other | | Total |
| | (In thousands) |
| Accrual as of January 1 | $ | 795 |
| | $ | 933 |
| | $ | 1,728 |
|
| Charges incurred | 8,350 |
| | 8,417 |
| | 16,767 |
|
| Payments made | (6,132 | ) | | (8,786 | ) | | (14,918 | ) |
| Accrual as of December 31 | $ | 3,013 |
| | $ | 564 |
| | $ | 3,577 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Integration Related Costs | | Stock-based Compensation Expense | | Total |
| | (In thousands) |
| Cost of revenue | $ | — |
| | $ | — |
| | $ | — |
|
| Selling and marketing expense | — |
| | 2,161 |
| | 2,161 |
|
| General and administrative expense | 3,584 |
| | 61,010 |
| | 64,594 |
|
| Product development expense | — |
| | 7,474 |
| | 7,474 |
|
| Total | $ | 3,584 |
| | $ | 70,645 |
| | $ | 74,229 |
|
The costs are allocated as follows in the statement of operations: | | | | Year Ended December 31, | Year Ended December 31, 2017 |
| | 2016 | | 2015 | Transaction and Integration Related Costs | | Stock-based Compensation Expense | | Total |
| | (In thousands) | (In thousands) |
| Cost of revenue | $ | 566 |
| | $ | 2,947 |
| $ | — |
| | $ | — |
| | $ | — |
|
| Selling and marketing expense | 560 |
| | 1,678 |
| 7,430 |
| | 24,416 |
| | 31,846 |
|
| General and administrative expense | 1,647 |
| | 8,160 |
| 36,120 |
| | 83,420 |
| | 119,540 |
|
| Product development expense | 2,148 |
| | 3,982 |
| 551 |
| | 14,230 |
| | 14,781 |
|
| Total | $ | 4,921 |
| | $ | 16,767 |
| $ | 44,101 |
| | $ | 122,066 |
| | $ | 166,167 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 22—19—GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The 2013 and 20124.75% 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 December 31, 20162018 and 20152017 and for the years ended December 31, 2016, 20152018, 2017 and 20142016 for: IAC, on a stand-alonestandalone basis; the combined guarantor subsidiaries of IAC; the combined non-guarantor subsidiaries of IAC; and IAC on a consolidated basis.
Balance sheet at December 31, 2016:
| | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Cash and cash equivalents | $ | 552,699 |
| | $ | — |
| | $ | 776,488 |
| | $ | — |
| | $ | 1,329,187 |
| $ | 1,018,082 |
| | $ | — |
| | $ | 1,113,550 |
| | $ | — |
| | $ | 2,131,632 |
|
| Marketable securities | 89,342 |
| | — |
| | — |
| | — |
| | 89,342 |
| 98,299 |
| | — |
| | 25,366 |
| | — |
| | 123,665 |
|
| Accounts receivable, net | — |
| | 90,807 |
| | 129,331 |
| | — |
| | 220,138 |
| |
| Accounts receivable, net of allowance and reserves | | — |
| | 99,970 |
| | 179,219 |
| | — |
| | 279,189 |
|
| Other current assets | 71,152 |
| | 30,515 |
| | 102,401 |
| | — |
| | 204,068 |
| 27,349 |
| | 29,222 |
| | 171,682 |
| | — |
| | 228,253 |
|
| Intercompany receivables | — |
| | 735,108 |
| | 1,047,757 |
| | (1,782,865 | ) | | — |
| — |
| | 1,423,456 |
| | — |
| | (1,423,456 | ) | | — |
|
| Property and equipment, net | 4,350 |
| | 178,806 |
| | 123,092 |
| | — |
| | 306,248 |
| |
| Property and equipment, net of accumulated depreciation and amortization | | 6,526 |
| | 163,281 |
| | 148,993 |
| | — |
| | 318,800 |
|
| Goodwill | — |
| | 521,740 |
| | 1,402,312 |
| | — |
| | 1,924,052 |
| — |
| | 412,009 |
| | 2,314,850 |
| | — |
| | 2,726,859 |
|
| Intangible assets, net | — |
| | 83,179 |
| | 272,272 |
| | — |
| | 355,451 |
| |
| Intangible assets, net of accumulated amortization | | — |
| | 43,914 |
| | 587,508 |
| | — |
| | 631,422 |
|
| Investment in subsidiaries | 3,659,570 |
| | 557,802 |
| | — |
| | (4,217,372 | ) | | — |
| 1,897,699 |
| | 214,519 |
| | — |
| | (2,112,218 | ) | | — |
|
| Other non-current assets | 52,228 |
| | 111,037 |
| | 169,595 |
| | (115,473 | ) | | 217,387 |
| 274,789 |
| | 94,290 |
| | 251,315 |
| | (185,629 | ) | | 434,765 |
|
| Total assets | $ | 4,429,341 |
| | $ | 2,308,994 |
| | $ | 4,023,248 |
| | $ | (6,115,710 | ) | | $ | 4,645,873 |
| $ | 3,322,744 |
| | $ | 2,480,661 |
| | $ | 4,792,483 |
| | $ | (3,721,303 | ) | | $ | 6,874,585 |
|
| | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | $ | 20,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 20,000 |
| $ | — |
| | $ | — |
| | $ | 13,750 |
| | $ | — |
| | $ | 13,750 |
|
| Accounts payable, trade | 2,697 |
| | 38,283 |
| | 21,883 |
| | — |
| | 62,863 |
| 1,304 |
| | 36,293 |
| | 37,310 |
| | — |
| | 74,907 |
|
| Other current liabilities | 42,159 |
| | 120,279 |
| | 468,087 |
| | — |
| | 630,525 |
| 41,721 |
| | 95,405 |
| | 657,775 |
| | — |
| | 794,901 |
|
| Long-term debt, net of current portion | 405,991 |
| | — |
| | 1,176,493 |
| | — |
| | 1,582,484 |
| |
| Long-term debt, net | | 34,262 |
| | — |
| | 2,211,286 |
| | — |
| | 2,245,548 |
|
| Income taxes payable | — |
| | 3,470 |
| | 30,274 |
| | (216 | ) | | 33,528 |
| 15 |
| | 1,707 |
| | 35,862 |
| | — |
| | 37,584 |
|
| Intercompany liabilities | 1,782,865 |
| | — |
| | — |
| | (1,782,865 | ) | | — |
| 402,056 |
| | — |
| | 1,021,400 |
| | (1,423,456 | ) | | — |
|
| Other long-term liabilities | 306,407 |
| | 22,714 |
| | 59,112 |
| | (115,257 | ) | | 272,976 |
| 261 |
| | 18,181 |
| | 257,594 |
| | (185,629 | ) | | 90,407 |
|
| Redeemable noncontrolling interests | — |
| | — |
| | 32,827 |
| | — |
| | 32,827 |
| — |
| | — |
| | 65,687 |
| | — |
| | 65,687 |
|
| IAC shareholders' equity | 1,869,222 |
| | 2,124,248 |
| | 2,093,124 |
| | (4,217,372 | ) | | 1,869,222 |
| |
| Shareholders' equity (deficit) | | 2,843,125 |
| | 2,329,075 |
| | (216,857 | ) | | (2,112,218 | ) | | 2,843,125 |
|
| Noncontrolling interests | — |
| | — |
| | 141,448 |
| | — |
| | 141,448 |
| — |
| | — |
| | 708,676 |
| | — |
| | 708,676 |
|
| Total liabilities and shareholders' equity | $ | 4,429,341 |
| | $ | 2,308,994 |
| | $ | 4,023,248 |
| | $ | (6,115,710 | ) | | $ | 4,645,873 |
| $ | 3,322,744 |
| | $ | 2,480,661 |
| | $ | 4,792,483 |
| | $ | (3,721,303 | ) | | $ | 6,874,585 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Balance sheet at December 31, 2015:
| | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Cash and cash equivalents | $ | 1,073,053 |
| | $ | — |
| | $ | 408,394 |
| | $ | — |
| | $ | 1,481,447 |
| $ | 585,639 |
| | $ | — |
| | $ | 1,045,170 |
| | $ | — |
| | $ | 1,630,809 |
|
| Marketable securities | 27,578 |
| | — |
| | 11,622 |
| | — |
| | 39,200 |
| 4,995 |
| | — |
| | — |
| | — |
| | 4,995 |
|
| Accounts receivable, net | 33 |
| | 115,280 |
| | 134,764 |
| | — |
| | 250,077 |
| |
| Accounts receivable, net of allowance and reserves | | 31 |
| | 109,289 |
| | 194,707 |
| | — |
| | 304,027 |
|
| Other current assets | 30,813 |
| | 46,128 |
| | 97,345 |
| | — |
| | 174,286 |
| 49,159 |
| | 33,387 |
| | 102,828 |
| | — |
| | 185,374 |
|
| Intercompany receivables | — |
| | 637,324 |
| | 963,146 |
| | (1,600,470 | ) | | — |
| — |
| | 668,703 |
| | — |
| | (668,703 | ) | | — |
|
| Property and equipment, net | 4,432 |
| | 198,890 |
| | 99,495 |
| | — |
| | 302,817 |
| |
| Property and equipment, net of accumulated depreciation and amortization | | 2,811 |
| | 174,323 |
| | 138,036 |
| | — |
| | 315,170 |
|
| Goodwill | — |
| | 776,569 |
| | 1,468,795 |
| | — |
| | 2,245,364 |
| — |
| | 412,010 |
| | 2,147,056 |
| | — |
| | 2,559,066 |
|
| Intangible assets, net | — |
| | 135,817 |
| | 305,011 |
| | — |
| | 440,828 |
| |
| Intangible assets, net of accumulated amortization | | — |
| | 74,852 |
| | 588,885 |
| | — |
| | 663,737 |
|
| Investment in subsidiaries | 3,128,765 |
| | 466,601 |
| | — |
| | (3,595,366 | ) | | — |
| 2,077,898 |
| | 554,998 |
| | — |
| | (2,632,896 | ) | | — |
|
| Other non-current assets | 84,368 |
| | 11,258 |
| | 174,038 |
| | (14,992 | ) | | 254,672 |
| 170,073 |
| | 87,306 |
| | 79,688 |
| | (132,435 | ) | | 204,632 |
|
| Total assets | $ | 4,349,042 |
| | $ | 2,387,867 |
| | $ | 3,662,610 |
| | $ | (5,210,828 | ) | | $ | 5,188,691 |
| $ | 2,890,606 |
| | $ | 2,114,868 |
| | $ | 4,296,370 |
| | $ | (3,434,034 | ) | | $ | 5,867,810 |
|
| | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | $ | — |
| | $ | — |
| | $ | 40,000 |
| | $ | — |
| | $ | 40,000 |
| $ | — |
| | $ | — |
| | $ | 13,750 |
| | $ | — |
| | $ | 13,750 |
|
| Accounts payable, trade | 4,711 |
| | 42,104 |
| | 40,068 |
| | — |
| | 86,883 |
| 5,163 |
| | 30,469 |
| | 40,939 |
| | — |
| | 76,571 |
|
| Other current liabilities | 62,833 |
| | 140,077 |
| | 438,753 |
| | — |
| | 641,663 |
| 29,489 |
| | 88,050 |
| | 591,868 |
| | — |
| | 709,407 |
|
| Long-term debt, net of current portion | 550,083 |
| | — |
| | 1,176,871 |
| | — |
| | 1,726,954 |
| |
| Long-term debt, net | | 34,572 |
| | — |
| | 1,944,897 |
| | — |
| | 1,979,469 |
|
| Income taxes payable | 152 |
| | 3,435 |
| | 30,105 |
| | — |
| | 33,692 |
| 16 |
| | 1,605 |
| | 24,003 |
| | — |
| | 25,624 |
|
| Intercompany liabilities | 1,600,470 |
| | — |
| | — |
| | (1,600,470 | ) | | — |
| 390,827 |
| | — |
| | 277,876 |
| | (668,703 | ) | | — |
|
| Other long-term liabilities | 326,267 |
| | 18,160 |
| | 83,848 |
| | (14,992 | ) | | 413,283 |
| 511 |
| | 18,613 |
| | 186,610 |
| | (132,435 | ) | | 73,299 |
|
| Redeemable noncontrolling interests | — |
| | — |
| | 30,391 |
| | — |
| | 30,391 |
| — |
| | — |
| | 42,867 |
| | — |
| | 42,867 |
|
| IAC shareholders' equity | 1,804,526 |
| | 2,184,091 |
| | 1,411,275 |
| | (3,595,366 | ) | | 1,804,526 |
| |
| Shareholders' equity | | 2,430,028 |
| | 1,976,131 |
| | 656,765 |
| | (2,632,896 | ) | | 2,430,028 |
|
| Noncontrolling interests | — |
| | — |
| | 411,299 |
| | — |
| | 411,299 |
| — |
| | — |
| | 516,795 |
| | — |
| | 516,795 |
|
| Total liabilities and shareholders' equity | $ | 4,349,042 |
| | $ | 2,387,867 |
| | $ | 3,662,610 |
| | $ | (5,210,828 | ) | | $ | 5,188,691 |
| $ | 2,890,606 |
| | $ | 2,114,868 |
| | $ | 4,296,370 |
| | $ | (3,434,034 | ) | | $ | 5,867,810 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of operations for the year ended December 31, 2016:
| | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Revenue | $ | — |
| | $ | 1,381,525 |
| | $ | 1,771,568 |
| | $ | (13,211 | ) | | $ | 3,139,882 |
| $ | — |
| | $ | 850,475 |
| | $ | 3,412,795 |
| | $ | (378 | ) | | $ | 4,262,892 |
|
| Operating costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 859 |
| | 302,293 |
| | 452,990 |
| | (412 | ) | | 755,730 |
| 195 |
| | 262,912 |
| | 648,330 |
| | (291 | ) | | 911,146 |
|
| Selling and marketing expense | 2,353 |
| | 689,933 |
| | 565,906 |
| | (12,929 | ) | | 1,245,263 |
| 977 |
| | 313,769 |
| | 1,204,844 |
| | (150 | ) | | 1,519,440 |
|
| General and administrative expense | 89,583 |
| | 163,315 |
| | 294,132 |
| | 130 |
| | 547,160 |
| 141,727 |
| | 49,563 |
| | 582,720 |
| | 69 |
| | 774,079 |
|
| Product development expense | 4,807 |
| | 82,071 |
| | 111,007 |
| | — |
| | 197,885 |
| 2,003 |
| | 56,431 |
| | 250,901 |
| | (6 | ) | | 309,329 |
|
| Depreciation | 1,610 |
| | 31,366 |
| | 38,700 |
| | — |
| | 71,676 |
| 1,203 |
| | 12,497 |
| | 61,660 |
| | — |
| | 75,360 |
|
| Amortization of intangibles | — |
| | 41,157 |
| | 38,269 |
| | — |
| | 79,426 |
| — |
| | 29,437 |
| | 78,962 |
| | — |
| | 108,399 |
|
| Goodwill impairment | — |
| | 253,245 |
| | 22,122 |
| | — |
| | 275,367 |
| |
| Total operating costs and expenses | 99,212 |
| | 1,563,380 |
| | 1,523,126 |
| | (13,211 | ) | | 3,172,507 |
| 146,105 |
| | 724,609 |
| | 2,827,417 |
| | (378 | ) | | 3,697,753 |
|
| Operating (loss) income | (99,212 | ) | | (181,855 | ) | | 248,442 |
| | — |
| | (32,625 | ) | (146,105 | ) | | 125,866 |
| | 585,378 |
| | — |
| | 565,139 |
|
| Equity in earnings (losses) of unconsolidated affiliates | 49,536 |
| | (23,573 | ) | | — |
| | (25,963 | ) | | — |
| |
| Equity in earnings of unconsolidated affiliates | | 731,834 |
| | 20,083 |
| | — |
| | (751,917 | ) | | — |
|
| Interest expense | (26,876 | ) | | — |
| | (82,234 | ) | | — |
| | (109,110 | ) | (1,700 | ) | | — |
| | (107,627 | ) | | — |
| | (109,327 | ) |
| Other (expense) income, net | (2,059 | ) | | 10,040 |
| | 52,480 |
| | — |
| | 60,461 |
| |
| (Loss) earnings from continuing operations before income taxes | (78,611 | ) | | (195,388 | ) | | 218,688 |
| | (25,963 | ) | | (81,274 | ) | |
Other (expense) income, net (a) | | (18,834 | ) | | 503,261 |
| | 199,757 |
| | (378,438 | ) | | 305,746 |
|
| Earnings before income taxes | | 565,195 |
| | 649,210 |
| | 677,508 |
| | (1,130,355 | ) | | 761,558 |
|
| Income tax benefit (provision) | 37,142 |
| | 60,504 |
| | (32,712 | ) | | — |
| | 64,934 |
| 61,766 |
| | (56,612 | ) | | (8,965 | ) | | — |
| | (3,811 | ) |
(Loss) earnings from continuing operations | (41,469 | ) | | (134,884 | ) | | 185,976 |
| | (25,963 | ) | | (16,340 | ) | |
| Earnings from discontinued operations, net of tax | 189 |
| | — |
| | 9 |
| | (9 | ) | | 189 |
| |
| Net (loss) earnings | (41,280 | ) | | (134,884 | ) | | 185,985 |
| | (25,972 | ) | | (16,151 | ) | |
| Net earnings | | 626,961 |
| | 592,598 |
| | 668,543 |
| | (1,130,355 | ) | | 757,747 |
|
| Net earnings attributable to noncontrolling interests | — |
| | — |
| | (25,129 | ) | | — |
| | (25,129 | ) | — |
| | — |
| | (130,786 | ) | | — |
| | (130,786 | ) |
| Net (loss) earnings attributable to IAC shareholders | $ | (41,280 | ) | | $ | (134,884 | ) | | $ | 160,856 |
| | $ | (25,972 | ) | | $ | (41,280 | ) | |
| Comprehensive (loss) income attributable to IAC shareholders | $ | (76,431 | ) | | $ | (115,899 | ) | | $ | 114,376 |
| | $ | 1,523 |
| | $ | (76,431 | ) | |
| Net earnings attributable to IAC shareholders | | $ | 626,961 |
| | $ | 592,598 |
| | $ | 537,757 |
| | $ | (1,130,355 | ) | | $ | 626,961 |
|
| Comprehensive income attributable to IAC shareholders | | $ | 601,683 |
| | $ | 601,232 |
| | $ | 515,766 |
| | $ | (1,116,998 | ) | | $ | 601,683 |
|
____________________
| |
(a) | During the year ended December 31, 2018, foreign cash of $396.2 million was repatriated to the U.S, of which $25.2 million was between non-guarantor subsidiaries. |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of operations for the year ended December 31, 2015:
| | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Revenue | $ | — |
| | $ | 1,635,345 |
| | $ | 1,605,597 |
| | $ | (10,009 | ) | | $ | 3,230,933 |
| $ | — |
| | $ | 753,858 |
| | $ | 2,553,998 |
| | $ | (617 | ) | | $ | 3,307,239 |
|
| Operating costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 720 |
| | 334,931 |
| | 443,700 |
| | (1,190 | ) | | 778,161 |
| 160 |
| | 159,488 |
| | 491,865 |
| | (505 | ) | | 651,008 |
|
| Selling and marketing expense | 3,210 |
| | 819,354 |
| | 531,872 |
| | (8,860 | ) | | 1,345,576 |
| 1,250 |
| | 353,186 |
| | 1,027,304 |
| | (519 | ) | | 1,381,221 |
|
| General and administrative expense | 93,090 |
| | 157,013 |
| | 275,485 |
| | 41 |
| | 525,629 |
| 100,237 |
| | 62,340 |
| | 556,273 |
| | 407 |
| | 719,257 |
|
| Product development expense | 4,311 |
| | 85,582 |
| | 95,873 |
| | — |
| | 185,766 |
| 2,421 |
| | 55,232 |
| | 193,226 |
| | — |
| | 250,879 |
|
| Depreciation | 1,918 |
| | 27,276 |
| | 33,011 |
| | — |
| | 62,205 |
| 1,564 |
| | 20,668 |
| | 52,033 |
| | — |
| | 74,265 |
|
| Amortization of intangibles | — |
| | 102,622 |
| | 37,330 |
| | — |
| | 139,952 |
| — |
| | 11,213 |
| | 30,930 |
| | — |
| | 42,143 |
|
| Goodwill impairment | — |
| | 14,056 |
| | — |
| | — |
| | 14,056 |
| |
| Total operating costs and expenses | 103,249 |
| | 1,540,834 |
| | 1,417,271 |
| | (10,009 | ) | | 3,051,345 |
| 105,632 |
| | 662,127 |
| | 2,351,631 |
| | (617 | ) | | 3,118,773 |
|
| Operating (loss) income | (103,249 | ) | | 94,511 |
| | 188,326 |
| | — |
| | 179,588 |
| (105,632 | ) | | 91,731 |
| | 202,367 |
| | — |
| | 188,466 |
|
| Equity in earnings of unconsolidated affiliates | 215,092 |
| | 18,137 |
| | — |
| | (233,229 | ) | | — |
| 419,149 |
| | 20,755 |
| | — |
| | (439,904 | ) | | — |
|
| Interest expense | (49,405 | ) | | (6,130 | ) | | (18,101 | ) | | — |
| | (73,636 | ) | (20,339 | ) | | — |
| | (84,956 | ) | | — |
| | (105,295 | ) |
| Other (expense) income, net | (3,201 | ) | | 27,903 |
| | 12,219 |
| | — |
| | 36,921 |
| (30,787 | ) | | 28,434 |
| | (13,860 | ) | | — |
| | (16,213 | ) |
| Earnings from continuing operations before income taxes | 59,237 |
| | 134,421 |
| | 182,444 |
| | (233,229 | ) | | 142,873 |
| |
| Earnings before income taxes | | 262,391 |
| | 140,920 |
| | 103,551 |
| | (439,904 | ) | | 66,958 |
|
| Income tax benefit (provision) | 60,218 |
| | (47,280 | ) | | (42,454 | ) | | — |
| | (29,516 | ) | 42,533 |
| | (119,957 | ) | | 368,474 |
| | — |
| | 291,050 |
|
| Earnings from continuing operations | 119,455 |
| | 87,141 |
| | 139,990 |
| | (233,229 | ) | | 113,357 |
| |
| Earnings (loss) from discontinued operations, net of tax | 17 |
| | — |
| | (12 | ) | | 12 |
| | 17 |
| |
| Net earnings | 119,472 |
| | 87,141 |
| | 139,978 |
| | (233,217 | ) | | 113,374 |
| 304,924 |
| | 20,963 |
| | 472,025 |
| | (439,904 | ) | | 358,008 |
|
| Net loss attributable to noncontrolling interests | — |
| | — |
| | 6,098 |
| | — |
| | 6,098 |
| |
| Net earnings attributable to noncontrolling interests | | — |
| | — |
| | (53,084 | ) | | — |
| | (53,084 | ) |
| Net earnings attributable to IAC shareholders | $ | 119,472 |
| | $ | 87,141 |
| | $ | 146,076 |
| | $ | (233,217 | ) | | $ | 119,472 |
| $ | 304,924 |
| | $ | 20,963 |
| | $ | 418,941 |
| | $ | (439,904 | ) | | $ | 304,924 |
|
| Comprehensive income attributable to IAC shareholders | $ | 55,069 |
| | $ | 83,664 |
| | $ | 80,248 |
| | $ | (163,912 | ) | | $ | 55,069 |
| $ | 367,370 |
| | $ | 7,629 |
| | $ | 498,032 |
| | $ | (505,661 | ) | | $ | 367,370 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of operations for the year ended December 31, 2014:
| | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Revenue | $ | — |
| | $ | 1,637,345 |
| | $ | 1,484,041 |
| | $ | (11,839 | ) | | $ | 3,109,547 |
| $ | — |
| | $ | 960,000 |
| | $ | 2,180,487 |
| | $ | (605 | ) | | $ | 3,139,882 |
|
| Operating costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 998 |
| | 414,255 |
| | 447,704 |
| | (2,753 | ) | | 860,204 |
| 859 |
| | 297,712 |
| | 457,571 |
| | (412 | ) | | 755,730 |
|
| Selling and marketing expense | 2,138 |
| | 696,173 |
| | 457,401 |
| | (8,303 | ) | | 1,147,409 |
| 2,353 |
| | 417,051 |
| | 828,016 |
| | (323 | ) | | 1,247,097 |
|
| General and administrative expense | 105,221 |
| | 127,122 |
| | 211,222 |
| | 45 |
| | 443,610 |
| 89,583 |
| | 83,636 |
| | 357,097 |
| | 130 |
| | 530,446 |
|
| Product development expense | 6,496 |
| | 76,482 |
| | 78,365 |
| | (828 | ) | | 160,515 |
| 4,807 |
| | 69,778 |
| | 138,180 |
| | — |
| | 212,765 |
|
| Depreciation | 1,426 |
| | 25,670 |
| | 34,060 |
| | — |
| | 61,156 |
| 1,610 |
| | 26,514 |
| | 43,552 |
| | — |
| | 71,676 |
|
| Amortization of intangibles | — |
| | 31,863 |
| | 26,063 |
| | — |
| | 57,926 |
| — |
| | 41,157 |
| | 38,269 |
| | — |
| | 79,426 |
|
| Goodwill impairment | | — |
| | 253,245 |
| | 22,122 |
| | — |
| | 275,367 |
|
| Total operating costs and expenses | 116,279 |
| | 1,371,565 |
| | 1,254,815 |
| | (11,839 | ) | | 2,730,820 |
| 99,212 |
| | 1,189,093 |
| | 1,884,807 |
| | (605 | ) | | 3,172,507 |
|
| Operating (loss) income | (116,279 | ) | | 265,780 |
| | 229,226 |
| | — |
| | 378,727 |
| (99,212 | ) | | (229,093 | ) | | 295,680 |
| | — |
| | (32,625 | ) |
| Equity in earnings of unconsolidated affiliates | 257,714 |
| | 3,369 |
| | — |
| | (261,083 | ) | | — |
| 49,545 |
| | 6,774 |
| | — |
| | (56,319 | ) | | — |
|
| Interest expense | (51,988 | ) | | (4,187 | ) | | (139 | ) | | — |
| | (56,314 | ) | (26,876 | ) | | — |
| | (82,234 | ) | | — |
| | (109,110 | ) |
| Other (expense) income, net | (1,444 | ) | | 6,381 |
| | (57,421 | ) | | — |
| | (52,484 | ) | (1,879 | ) | | 10,209 |
| | 52,320 |
| | — |
| | 60,650 |
|
| Earnings from continuing operations before income taxes | 88,003 |
| | 271,343 |
| | 171,666 |
| | (261,083 | ) | | 269,929 |
| |
| (Loss) earnings before income taxes | | (78,422 | ) | | (212,110 | ) | | 265,766 |
| | (56,319 | ) | | (81,085 | ) |
| Income tax benefit (provision) | 152,197 |
| | (104,606 | ) | | (82,963 | ) | | — |
| | (35,372 | ) | 37,142 |
| | 77,851 |
| | (50,059 | ) | | — |
| | 64,934 |
|
| Earnings from continuing operations | 240,200 |
| | 166,737 |
| | 88,703 |
| | (261,083 | ) | | 234,557 |
| |
| Earnings from discontinued operations, net of tax | 174,673 |
| | — |
| | 570 |
| | (570 | ) | | 174,673 |
| |
| Net earnings | 414,873 |
| | 166,737 |
| | 89,273 |
| | (261,653 | ) | | 409,230 |
| |
| Net loss attributable to noncontrolling interests | — |
| | — |
| | 5,643 |
| | — |
| | 5,643 |
| |
| Net earnings attributable to IAC shareholders | $ | 414,873 |
| | $ | 166,737 |
| | $ | 94,916 |
| | $ | (261,653 | ) | | $ | 414,873 |
| |
| Comprehensive income attributable to IAC shareholders | $ | 340,219 |
| | $ | 158,538 |
| | $ | 23,409 |
| | $ | (181,947 | ) | | $ | 340,219 |
| |
| Net (loss) earnings | | (41,280 | ) | | (134,259 | ) | | 215,707 |
| | (56,319 | ) | | (16,151 | ) |
| Net earnings attributable to noncontrolling interests | | — |
| | — |
| | (25,129 | ) | | — |
| | (25,129 | ) |
| Net (loss) earnings attributable to IAC shareholders | | $ | (41,280 | ) | | $ | (134,259 | ) | | $ | 190,578 |
| | $ | (56,319 | ) | | $ | (41,280 | ) |
| Comprehensive (loss) income attributable to IAC shareholders | | $ | (76,431 | ) | | $ | (142,494 | ) | | $ | 145,039 |
| | $ | (2,545 | ) | | $ | (76,431 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of cash flows for the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities attributable to continuing operations | $ | (84,770 | ) | | $ | 203,563 |
| | $ | 173,584 |
| | $ | — |
| | $ | 292,377 |
|
| Cash flows from investing activities attributable to continuing operations: | | | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | — |
| | (18,403 | ) | | — |
| | (18,403 | ) |
| Capital expenditures | (479 | ) | | (19,317 | ) | | (58,243 | ) | | — |
| | (78,039 | ) |
| Investments in 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 | 252,369 |
| | — |
| | — |
| | — |
| | 252,369 |
|
| Purchases of marketable debt securities | (313,943 | ) | | — |
| | — |
| | — |
| | (313,943 | ) |
| Purchases of investments | — |
| | — |
| | (12,565 | ) | | — |
| | (12,565 | ) |
| Net proceeds from the sale of businesses and investments | 73,843 |
| | 1,779 |
| | 96,606 |
| | — |
| | 172,228 |
|
| Intercompany | (215,711 | ) | | — |
| | — |
| | 215,711 |
| | — |
|
| Other, net | 126 |
| | 643 |
| | 10,446 |
| | — |
| | 11,215 |
|
| Net cash (used in) provided by investing activities attributable to continuing operations | (203,795 | ) | | (16,895 | ) | | 17,841 |
| | 215,711 |
| | 12,862 |
|
| Cash flows from financing activities attributable to continuing operations: | | | | | | | | | |
| Principal payments on Match Group Term Loan | — |
| | — |
| | (450,000 | ) | | — |
| | (450,000 | ) |
| Proceeds from Match Group 2016 Senior Notes offering | — |
| | — |
| | 400,000 |
| | — |
| | 400,000 |
|
| Principal payments on IAC debt, including redemptions and repurchases of Senior Notes | (126,409 | ) | | — |
| | — |
| | — |
| | (126,409 | ) |
| Debt issuance costs | — |
| | — |
| | (7,811 | ) | | — |
| | (7,811 | ) |
| Purchase of treasury stock | (308,948 | ) | | — |
| | — |
| | — |
| | (308,948 | ) |
| Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes | (895 | ) | | — |
| | — |
| | — |
| | (895 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes | — |
| | — |
| | 9,548 |
| | — |
| | 9,548 |
|
| Excess tax benefits from stock-based awards | 22,084 |
| | — |
| | 29,680 |
| | — |
| | 51,764 |
|
| Purchase of noncontrolling interests | (1,400 | ) | | — |
| | (1,340 | ) | | — |
| | (2,740 | ) |
| Acquisition-related contingent consideration payments | — |
| | (351 | ) | | (1,829 | ) | | — |
| | (2,180 | ) |
| Funds held in escrow for MyHammer tender offer | — |
| | — |
| | (10,548 | ) | | — |
| | (10,548 | ) |
| Intercompany | 184,233 |
| | (184,233 | ) | | 215,711 |
| | (215,711 | ) | | — |
|
| Other, net | (454 | ) | | (2,084 | ) | | (308 | ) | | — |
| | (2,846 | ) |
| Net cash (used in) provided by financing activities attributable to continuing operations | (231,789 | ) | | (186,668 | ) | | 183,103 |
| | (215,711 | ) | | (451,065 | ) |
| Total cash (used in) provided by continuing operations | (520,354 | ) | | — |
| | 374,528 |
| | — |
| | (145,826 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (6,434 | ) | | — |
| | (6,434 | ) |
| Net (decrease) increase in cash and cash equivalents | (520,354 | ) | | — |
| | 368,094 |
| | — |
| | (152,260 | ) |
| Cash and cash equivalents at beginning of period | 1,073,053 |
| | — |
| | 408,394 |
| | — |
| | 1,481,447 |
|
| Cash and cash equivalents at end of period | $ | 552,699 |
| | $ | — |
| | $ | 776,488 |
| | $ | — |
| | $ | 1,329,187 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (38,737 | ) | | $ | 583,498 |
| | $ | 822,227 |
| | $ | (378,860 | ) | | $ | 988,128 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Acquisitions, net of cash acquired | (4,142 | ) | | (50,530 | ) | | (9,824 | ) | | — |
| | (64,496 | ) |
| Capital expenditures | (5,274 | ) | | (1,396 | ) | | (78,964 | ) | | — |
| | (85,634 | ) |
| Proceeds from maturities and sales of marketable debt securities | 298,600 |
| | — |
| | 35,000 |
| | — |
| | 333,600 |
|
| Purchases of marketable debt securities | (390,005 | ) | | — |
| | (59,671 | ) | | — |
| | (449,676 | ) |
| Net proceeds from the sale of businesses and investments | 408 |
| | 87,254 |
| | 49,057 |
| | — |
| | 136,719 |
|
| Purchases of investments | (39,180 | ) | | — |
| | (13,800 | ) | | — |
| | (52,980 | ) |
| Other, net | (5,000 | ) | | 7,451 |
| | 6,576 |
| | — |
| | 9,027 |
|
| Net cash (used in) provided by investing activities | (144,593 | ) | | 42,779 |
| | (71,626 | ) | | — |
| | (173,440 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Repurchases of IAC debt | (363 | ) | | — |
| | — |
| | — |
| | (363 | ) |
| Proceeds from issuance of Match Group debt | — |
| | — |
| | 260,000 |
| | — |
| | 260,000 |
|
| Principal payments on ANGI Homeservices Term Loan | — |
| | — |
| | (13,750 | ) | | — |
| | (13,750 | ) |
| Debt issuance costs | — |
| | — |
| | (5,449 | ) | | — |
| | (5,449 | ) |
| Purchase of IAC treasury stock | (82,891 | ) | | — |
| | — |
| | — |
| | (82,891 | ) |
| Purchase of Match Group treasury stock | — |
| | — |
| | (133,455 | ) | | — |
| | (133,455 | ) |
Proceeds from the exercise of IAC stock options
| 41,700 |
| | — |
| | — |
| | — |
| | 41,700 |
|
Proceeds from the exercise of Match Group and ANGI Homeservices stock options
| — |
| | — |
| | 4,705 |
| | — |
| | 4,705 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (18,982 | ) | | — |
| | — |
| | — |
| | (18,982 | ) |
| Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards | — |
| | — |
| | (237,564 | ) | | — |
| | (237,564 | ) |
| Dividends paid to Match Group noncontrolling interests | — |
| | — |
| | (105,126 | ) | | — |
| | (105,126 | ) |
| Purchase of noncontrolling interests | — |
| | — |
| | (16,063 | ) | | — |
| | (16,063 | ) |
| Acquisition-related contingent consideration payments | — |
| | — |
| | (185 | ) | | — |
| | (185 | ) |
| Intercompany | 673,308 |
| | (625,338 | ) | | (426,830 | ) | | 378,860 |
| | — |
|
| Other, net | 2,674 |
| | (939 | ) | | (7,110 | ) | | — |
| | (5,375 | ) |
| Net cash provided by (used in) financing activities | 615,446 |
| | (626,277 | ) | | (680,827 | ) | | 378,860 |
| | (312,798 | ) |
| Total cash provided | 432,116 |
| | — |
| | 69,774 |
| | — |
| | 501,890 |
|
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 327 |
| | — |
| | (2,214 | ) | | — |
| | (1,887 | ) |
| Net increase in cash, cash equivalents, and restricted cash | 432,443 |
| | — |
| | 67,560 |
| | — |
| | 500,003 |
|
| Cash, cash equivalents, and restricted cash at beginning of period | 585,639 |
| | — |
| | 1,048,043 |
| | — |
| | 1,633,682 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,018,082 |
| | $ | — |
| | $ | 1,115,603 |
| | $ | — |
| | $ | 2,133,685 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of cash flows for the year ended December 31, 2015:
|
| | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities attributable to continuing operations | $ | (139,227 | ) | | $ | 258,582 |
| | $ | 230,050 |
| | $ | 349,405 |
|
| Cash flows from investing activities attributable to continuing operations: | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | (6,078 | ) | | (611,324 | ) | | (617,402 | ) |
| Capital expenditures | (1,332 | ) | | (21,905 | ) | | (38,812 | ) | | (62,049 | ) |
| Proceeds from maturities and sales of marketable debt securities | 218,462 |
| | — |
| | — |
| | 218,462 |
|
| Purchases of marketable debt securities | (93,134 | ) | | — |
| | — |
| | (93,134 | ) |
| Purchases of investments | (6,978 | ) | | — |
| | (27,492 | ) | | (34,470 | ) |
| Net proceeds from the sale of investments and business | 1,277 |
| | — |
| | 8,136 |
| | 9,413 |
|
| Other, net | 3,613 |
| | 385 |
| | (7,539 | ) | | (3,541 | ) |
| Net cash provided by (used in) investing activities attributable to continuing operations | 121,908 |
| | (27,598 | ) | | (677,031 | ) | | (582,721 | ) |
| Cash flows from financing activities attributable to continuing operations: | | | | | | | |
| Borrowings under Match Group Term Loan | — |
| | — |
| | 788,000 |
| | 788,000 |
|
| Principal payment on Liberty Bond | — |
| | (80,000 | ) | | — |
| | (80,000 | ) |
| Debt issuance costs | (1,876 | ) | | — |
| | (17,174 | ) | | (19,050 | ) |
| Fees and expenses related to note exchange | — |
| | — |
| | (6,954 | ) | | (6,954 | ) |
| Proceeds from Match Group IPO, net of fees and expenses | — |
| | — |
| | 428,789 |
| | 428,789 |
|
| Purchase of treasury stock | (200,000 | ) | | — |
| | — |
| | (200,000 | ) |
| Dividends | (113,196 | ) | | — |
| | — |
| | (113,196 | ) |
| Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes | (38,418 | ) | | — |
| | — |
| | (38,418 | ) |
| Repurchase of stock-based awards | — |
| | — |
| | (23,431 | ) | | (23,431 | ) |
| Excess tax benefits from stock-based awards | 18,034 |
| | — |
| | 38,384 |
| | 56,418 |
|
| Purchase of noncontrolling interests | — |
| | — |
| | (32,207 | ) | | (32,207 | ) |
| Acquisition-related contingent consideration payments | — |
| | (240 | ) | | (5,510 | ) | | (5,750 | ) |
| Intercompany | 683,571 |
| | (150,744 | ) | | (532,827 | ) | | — |
|
| Other, net | (19,834 | ) | | — |
| | 441 |
| | (19,393 | ) |
| Net cash provided by (used in) financing activities attributable to continuing operations | 328,281 |
| | (230,984 | ) | | 637,511 |
| | 734,808 |
|
| Total cash provided by continuing operations | 310,962 |
| | — |
| | 190,530 |
| | 501,492 |
|
| Total cash used in discontinued operations | (140 | ) | | — |
| | (12 | ) | | (152 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (10,298 | ) | | (10,298 | ) |
| Net increase in cash and cash equivalents | 310,822 |
| | — |
| | 180,220 |
| | 491,042 |
|
| Cash and cash equivalents at beginning of period | 762,231 |
| | — |
| | 228,174 |
| | 990,405 |
|
| Cash and cash equivalents at end of period | $ | 1,073,053 |
| | $ | — |
| | $ | 408,394 |
| | $ | 1,481,447 |
|
|
| | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (52,582 | ) | | $ | 131,700 |
| | $ | 337,581 |
| | $ | 416,699 |
|
| Cash flows from investing activities: | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | (2,550 | ) | | (144,003 | ) | | (146,553 | ) |
| Capital expenditures | (337 | ) | | (1,169 | ) | | (74,017 | ) | | (75,523 | ) |
| Proceeds from maturities and sales of marketable debt securities | 114,350 |
| | — |
| | — |
| | 114,350 |
|
| Purchases of marketable debt securities | (29,891 | ) | | — |
| | — |
| | (29,891 | ) |
| Net proceeds from the sale of businesses and investments | 1,266 |
| | — |
| | 184,512 |
| | 185,778 |
|
| Purchases of investments | — |
| | — |
| | (9,106 | ) | | (9,106 | ) |
| Other, net | — |
| | 1,944 |
| | 1,050 |
| | 2,994 |
|
| Net cash provided by (used in) investing activities | 85,388 |
| | (1,775 | ) | | (41,564 | ) | | 42,049 |
|
| Cash flows from financing activities: | | | | | | | |
| Proceeds from issuance of IAC debt | — |
| | — |
| | 517,500 |
| | 517,500 |
|
| Repurchases of IAC debt | (393,464 | ) | | — |
| | — |
| | (393,464 | ) |
| Proceeds from issuance of Match Group debt | — |
| | — |
| | 525,000 |
| | 525,000 |
|
| Principal payments on Match Group debt | — |
| | — |
| | (445,172 | ) | | (445,172 | ) |
| Borrowing under ANGI Homeservices Term Loan | — |
| | — |
| | 275,000 |
| | 275,000 |
|
| Purchase of exchangeable note hedge | — |
| | — |
| | (74,365 | ) | | (74,365 | ) |
| Proceeds from issuance of warrants | 23,650 |
| | — |
| | — |
| | 23,650 |
|
| Debt issuance costs | — |
| | — |
| | (33,744 | ) | | (33,744 | ) |
| Purchase of IAC treasury stock | (56,424 | ) | | — |
| | — |
| | (56,424 | ) |
| Proceeds from the exercise of IAC stock options | 82,397 |
| | — |
| | — |
| | 82,397 |
|
| Proceeds from the exercise of Match Group and ANGI Homeservices stock options | — |
| | — |
| | 61,095 |
| | 61,095 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (93,832 | ) | | — |
| | — |
| | (93,832 | ) |
| Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards | — |
| | — |
| | (264,323 | ) | | (264,323 | ) |
| Purchase of Match Group stock-based awards | — |
| | — |
| | (272,459 | ) | | (272,459 | ) |
| Purchase of noncontrolling interests | — |
| | — |
| | (15,439 | ) | | (15,439 | ) |
| Acquisition-related contingent consideration payments | — |
| | — |
| | (27,289 | ) | | (27,289 | ) |
| Intercompany | 416,396 |
| | (129,925 | ) | | (286,471 | ) | | — |
|
| Other, net | 251 |
| | — |
| | (5,251 | ) | | (5,000 | ) |
| Net cash used in financing activities | (21,026 | ) | | (129,925 | ) | | (45,918 | ) | | (196,869 | ) |
| Total cash provided | 11,780 |
| | — |
| | 250,099 |
| | 261,879 |
|
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 75 |
| | — |
| | 11,529 |
| | 11,604 |
|
| Net increase in cash, cash equivalents, and restricted cash | 11,855 |
| | — |
| | 261,628 |
| | 273,483 |
|
| Cash, cash equivalents, and restricted cash at beginning of period | 573,784 |
| | — |
| | 786,415 |
| | 1,360,199 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 585,639 |
| | $ | — |
| | $ | 1,048,043 |
| | $ | 1,633,682 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of cash flows for the year ended December 31, 2014:
|
| | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities attributable to continuing operations | $ | (109,745 | ) | | $ | 329,671 |
| | $ | 204,122 |
| | $ | 424,048 |
|
| Cash flows from investing activities attributable to continuing operations: | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | (97,463 | ) | | (161,928 | ) | | (259,391 | ) |
| Capital expenditures | (1,843 | ) | | (26,640 | ) | | (28,750 | ) | | (57,233 | ) |
| Proceeds from maturities and sales of marketable debt securities | 21,644 |
| | — |
| | — |
| | 21,644 |
|
| Purchases of marketable debt securities | (175,826 | ) | | — |
| | — |
| | (175,826 | ) |
| Purchases of investments | (4,800 | ) | | (2,087 | ) | | (17,447 | ) | | (24,334 | ) |
| Net proceeds from the sale of investments and assets | — |
| | — |
| | 58,388 |
| | 58,388 |
|
| Other, net | (2,000 | ) | | 11 |
| | (1,053 | ) | | (3,042 | ) |
| Net cash used in investing activities attributable to continuing operations | (162,825 | ) | | (126,179 | ) | | (150,790 | ) | | (439,794 | ) |
| Cash flows from financing activities attributable to continuing operations: | | | | | | | |
| Debt issuance costs | (383 | ) | | — |
| | — |
| | (383 | ) |
| Dividends | (97,338 | ) | | — |
| | — |
| | (97,338 | ) |
| Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes | 1,609 |
| | — |
| | — |
| | 1,609 |
|
| Excess tax benefits from stock-based awards | 29,186 |
| | — |
| | 15,771 |
| | 44,957 |
|
| Purchase of noncontrolling interests | — |
| | — |
| | (33,165 | ) | | (33,165 | ) |
| Acquisition-related contingent consideration payments | — |
| | (406 | ) | | (7,703 | ) | | (8,109 | ) |
| Intercompany | 321,192 |
| | (201,802 | ) | | (119,390 | ) | | — |
|
| Other, net | — |
| | (1,310 | ) | | 12,759 |
| | 11,449 |
|
| Net cash provided by (used in) financing activities attributable to continuing operations | 254,266 |
| | (203,518 | ) | | (131,728 | ) | | (80,980 | ) |
| Total cash used in continuing operations | (18,304 | ) | | (26 | ) | | (78,396 | ) | | (96,726 | ) |
| Total cash used in discontinued operations | (116 | ) | | — |
| | (29 | ) | | (145 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | 26 |
| | (13,194 | ) | | (13,168 | ) |
| Net decrease in cash and cash equivalents | (18,420 | ) | | — |
| | (91,619 | ) | | (110,039 | ) |
| Cash and cash equivalents at beginning of period | 780,651 |
| | — |
| | 319,793 |
| | 1,100,444 |
|
| Cash and cash equivalents at end of period | $ | 762,231 |
| | $ | — |
| | $ | 228,174 |
| | $ | 990,405 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (62,686 | ) | | $ | 128,503 |
| | $ | 278,421 |
| | $ | — |
| | $ | 344,238 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | — |
| | (18,403 | ) | | — |
| | (18,403 | ) |
| Capital expenditures | (479 | ) | | (5,792 | ) | | (71,768 | ) | | — |
| | (78,039 | ) |
| Proceeds from maturities and sales of marketable debt securities | 252,369 |
| | — |
| | — |
| | — |
| | 252,369 |
|
| Purchases of marketable debt securities | (313,943 | ) | | — |
| | — |
| | — |
| | (313,943 | ) |
| Investments in time deposits | — |
| | — |
| | (87,500 | ) | | — |
| | (87,500 | ) |
| Proceeds from maturities of time deposits | — |
| | — |
| | 87,500 |
| | — |
| | 87,500 |
|
| Net proceeds from the sale of businesses and investments | 73,843 |
| | 1,779 |
| | 96,606 |
| | — |
| | 172,228 |
|
| Purchases of investments | — |
| | — |
| | (12,565 | ) | | — |
| | (12,565 | ) |
| Intercompany | (155,104 | ) | | — |
| | — |
| | 155,104 |
| | — |
|
| Other, net | 126 |
| | 910 |
| | 10,179 |
| | — |
| | 11,215 |
|
| Net cash (used in) provided by investing activities | (143,188 | ) | | (3,103 | ) | | 4,049 |
| | 155,104 |
| | 12,862 |
|
| Cash flows from financing activities: | | | | | | | | | |
| Repurchases of IAC debt | (126,409 | ) | | — |
| | — |
| | — |
| | (126,409 | ) |
Proceeds from issuance of Match Group debt
| — |
| | — |
| | 400,000 |
| | — |
| | 400,000 |
|
Principal payments on Match Group debt
| — |
| | — |
| | (450,000 | ) | | — |
| | (450,000 | ) |
Debt issuance costs
| — |
| | — |
| | (7,811 | ) | | — |
| | (7,811 | ) |
Purchase of IAC treasury stock
| (308,948 | ) | | — |
| | — |
| | — |
| | (308,948 | ) |
Proceeds from the exercise of IAC stock options
| 25,821 |
| | — |
| | — |
| | — |
| | 25,821 |
|
Proceeds from the exercise of Match Group stock options
| — |
| | — |
| | 39,378 |
| | — |
| | 39,378 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (26,716 | ) | | — |
| | — |
| | — |
| | (26,716 | ) |
Withholding taxes paid on behalf of Match Group employees on net settled stock-based awards
| — |
| | — |
| | (29,830 | ) | | — |
| | (29,830 | ) |
Purchase of noncontrolling interests
| (1,400 | ) | | — |
| | (1,340 | ) | | — |
| | (2,740 | ) |
Acquisition-related contingent consideration payments
| — |
| | (351 | ) | | (1,829 | ) | | — |
| | (2,180 | ) |
| Intercompany | 122,965 |
| | (122,965 | ) | | 155,104 |
| | (155,104 | ) | | — |
|
| Other, net | (313 | ) | | (2,084 | ) | | (308 | ) | | — |
| | (2,705 | ) |
| Net cash (used in) provided by financing activities | (315,000 | ) | | (125,400 | ) | | 103,364 |
| | (155,104 | ) | | (492,140 | ) |
| Total cash (used) provided | (520,874 | ) | | — |
| | 385,834 |
| | — |
| | (135,040 | ) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | — |
| | — |
| | (6,434 | ) | | — |
| | (6,434 | ) |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (520,874 | ) | | — |
| | 379,400 |
| | — |
| | (141,474 | ) |
| Cash, cash equivalents, and restricted cash at beginning of period | 1,094,658 |
| | — |
| | 407,015 |
| | — |
| | 1,501,673 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 573,784 |
| | $ | — |
| | $ | 786,415 |
| | $ | — |
| | $ | 1,360,199 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 23—20—QUARTERLY RESULTS (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| | Quarter Ended March 31(a) | | Quarter Ended June 30(b) | | Quarter Ended September 30 | | Quarter Ended December 31(a) |
| | (In thousands, except per share data) |
| Year Ended December 31, 2016 | | | | | | | |
| Revenue | $ | 819,179 |
| | $ | 745,439 |
| | $ | 764,102 |
| | $ | 811,162 |
|
| Cost of revenue | 193,734 |
| | 170,397 |
| | 179,131 |
| | 212,468 |
|
| Operating income (loss) | 21,417 |
| | (252,446 | ) | | 85,584 |
| | 112,820 |
|
| Earnings (loss) from continuing operations | 7,934 |
| | (190,542 | ) | | 52,340 |
| | 113,928 |
|
| Net earnings (loss) | 7,934 |
| | (190,542 | ) | | 52,340 |
| | 114,117 |
|
| Net earnings (loss) attributable to IAC shareholders | 8,282 |
| | (194,775 | ) | | 43,162 |
| | 102,051 |
|
| Per share information attributable to IAC shareholders: |
Basic earnings (loss) per share from continuing operations(d) | $ | 0.10 |
| | $ | (2.45 | ) | | $ | 0.54 |
| | $ | 1.29 |
|
Diluted earnings (loss) per share from continuing operations(d) | $ | 0.09 |
| | $ | (2.45 | ) | | $ | 0.49 |
| | $ | 1.18 |
|
Basic earnings (loss) per share(d) | $ | 0.10 |
| | $ | (2.45 | ) | | $ | 0.54 |
| | $ | 1.29 |
|
Diluted earnings (loss) per share(d) | $ | 0.09 |
| | $ | (2.45 | ) | | $ | 0.49 |
| | $ | 1.18 |
|
| | | | | | | | |
| | | | | | | | |
| | Quarter Ended March 31 | | Quarter Ended June 30 | | Quarter Ended September 30 | | Quarter Ended December 31(c) |
| | (In thousands, except per share data) |
| Year Ended December 31, 2015 | | | | | | | |
| Revenue | $ | 772,512 |
| | $ | 771,132 |
| | $ | 838,561 |
| | $ | 848,728 |
|
| Cost of revenue | 186,737 |
| | 177,963 |
| | 199,377 |
| | 214,084 |
|
| Operating income (loss) | 35,119 |
| | 62,769 |
| | 87,130 |
| | (5,430 | ) |
| Earnings (loss) from continuing operations | 21,863 |
| | 57,885 |
| | 65,026 |
| | (31,417 | ) |
| Net earnings (loss) | 21,988 |
| | 57,732 |
| | 65,043 |
| | (31,389 | ) |
| Net earnings (loss) attributable to IAC shareholders | 26,405 |
| | 59,305 |
| | 65,611 |
| | (31,849 | ) |
| Per share information attributable to IAC shareholders: |
Basic earnings (loss) per share from continuing operations(d) | $ | 0.31 |
| | $ | 0.72 |
| | $ | 0.79 |
| | $ | (0.38 | ) |
Diluted earnings (loss) per share from continuing operations(d) | $ | 0.30 |
| | $ | 0.68 |
| | $ | 0.74 |
| | $ | (0.38 | ) |
Basic earnings (loss) per share(d) | $ | 0.32 |
| | $ | 0.72 |
| | $ | 0.79 |
| | $ | (0.38 | ) |
Diluted earnings (loss) per share(d) | $ | 0.30 |
| | $ | 0.68 |
| | $ | 0.74 |
| | $ | (0.38 | ) |
|
| | | | | | | | | | | | | | | |
| | Quarter Ended March 31 (a) | | Quarter Ended June 30 (b) | | Quarter Ended September 30 (c) | | Quarter Ended December 31(d) |
| | (In thousands, except per share data) |
| Year Ended December 31, 2018 | | | | | | | |
| Revenue | $ | 995,075 |
| | $ | 1,059,122 |
| | $ | 1,104,592 |
| | $ | 1,104,103 |
|
| Cost of revenue | 201,962 |
| | 218,224 |
| | 237,238 |
| | 253,722 |
|
| Operating income | 89,950 |
| | 168,437 |
| | 172,832 |
| | 133,920 |
|
| Net earnings | 87,839 |
| | 280,854 |
| | 171,577 |
| | 217,477 |
|
| Net earnings attributable to IAC shareholders | 71,082 |
| | 218,353 |
| | 145,774 |
| | 191,752 |
|
| Per share information attributable to IAC shareholders: |
Basic earnings per share(g) | $ | 0.86 |
| | $ | 2.61 |
| | $ | 1.75 |
| | $ | 2.29 |
|
Diluted earnings per share(g) | $ | 0.71 |
| | $ | 2.32 |
| | $ | 1.49 |
| | $ | 2.04 |
|
| | | | | | | | |
| | Quarter Ended March 31 | | Quarter Ended June 30 | | Quarter Ended September 30(e) | | Quarter Ended December 31(f) |
| | (In thousands, except per share data) |
| Year Ended December 31, 2017 | | | | | | | |
| Revenue | $ | 760,833 |
| | $ | 767,387 |
| | $ | 828,434 |
| | $ | 950,585 |
|
| Cost of revenue | 145,958 |
| | 139,033 |
| | 166,290 |
| | 199,727 |
|
| Operating income (loss) | 37,060 |
| | 75,635 |
| | (18,589 | ) | | 94,360 |
|
| Net earnings | 28,463 |
| | 80,557 |
| | 225,639 |
| | 23,349 |
|
| Net earnings attributable to IAC shareholders | 26,209 |
| | 66,268 |
| | 179,643 |
| | 32,804 |
|
| Per share information attributable to IAC shareholders: |
Basic earnings per share(g) | $ | 0.34 |
| | $ | 0.84 |
| | $ | 2.22 |
| | $ | 0.40 |
|
Diluted earnings per share(g) | $ | 0.29 |
| | $ | 0.70 |
| | $ | 1.79 |
| | $ | 0.37 |
|
| |
(a) | The first quarter of 2018 includes after-tax stock-based compensation expense of $14.6 million related to the modification of previously issued HomeAdvisor equity awards and fourthpreviously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination, as well as after-tax costs of $4.1 million related to the Combination (including $2.8 million of deferred revenue write-offs). |
| |
(b) | The second quarter of 2016 include 2018 includes: |
| |
| i. | after-tax stock-based compensation expense of $12.8 million related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination, as well as after-tax costs of $2.0 million related to the Combination (including $1.8 million of deferred revenue write-offs). |
| |
| ii. | after-tax realized and unrealized gains of $11.9 million and $37.5$133.3 million related to the sale of PriceRunner and ShoeBuy, respectively.a certain equity investment. |
| |
(b)(c) | The secondthird quarter of 20162018 includes after-tax impairment chargesstock-based compensation expense of $12.3 million related to goodwillthe modification of previously issued HomeAdvisor equity awards and indefinite-lived intangible assetspreviously issued Angie's List equity awards, both of $183.5 million and $7.2 million, respectively.which were converted into ANGI Homeservices' equity awards in the Combination. |
| |
(c)(d) | The fourth quarter of 2015 includes 2018 includes: |
| |
| i. | after-tax stock-based compensation expense of $14.4 million related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination. |
| |
| ii. | combined after-tax gains of $92.5 million related to the sales of Dictionary.com, Electus, Felix and CityGrid. |
| |
| iii. | after-tax impairment charges related to indefinite-lived intangible assets and goodwill of $55.3 million and $14.1 million, respectively.$21.3 million. |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
(e) | The third quarter of 2017 includes: |
| |
(d)i. | after-tax stock-based compensation expense of $60.9 million related to the modification of previously issued HomeAdvisor vested awards, which were converted into ANGI Homeservices equity awards, and the acceleration of certain Angie’s List equity awards in connection with the Combination, as well as after-tax costs of $17.4 million related to the Combination. |
| |
| ii. | a reduction to the income tax provision of $257.0 million related to excess tax benefits generated by the exercise, purchase and settlement of stock-based awards. |
| |
(f) | The fourth quarter of 2017 includes after-tax stock-based compensation expense of $15.8 million related to the modification of previously issued HomeAdvisor unvested awards, which were converted into ANGI Homeservices equity awards, the expense related to previously issued Angie's List equity awards and the acceleration of certain Angie's List equity awards resulting from the termination of employees in connection with the Combination, as well as after-tax costs of $13.9 million related to the Combination (including $7.6 million of deferred revenue write-offs). |
| |
(g) | Quarterly per share amounts may not add to the related annual per share amount because of differences in the average common shares outstanding during each period. |
NOTE 21—SUBSEQUENT EVENTS (UNAUDITED)
On February 11, 2019, the Company and Google amended the services agreement, effective as of April 1, 2020. The amendment extends the expiration date of the agreement to March 31, 2023; provided that beginning September 2020 and each September thereafter, either party may, after discussion with the other party, terminate the services agreement, effective on September 30 of the year following the year such notice is given. The Company believes that the amended agreement, taken as a whole, is comparable to the Company’s previously existing agreement with Google.
On February 15, 2019, MTCH completed a private offering of $350 million aggregate principal amount of its 5.625% Senior Notes due 2029. A portion of the proceeds from these notes were used to repay outstanding borrowings under the MTCH Credit Facility and to pay expenses associated with the offering; the remaining proceeds will be used for general corporate purposes.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of the Company's Disclosure Controls and Procedures
The Company monitors and evaluates on an ongoing basis its disclosure controls and procedures in order to improve their 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) of the Exchange Act, IAC management, including the Chairman and Senior Executive, the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, of the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Chairman and Senior Executive, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) for the Company. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016.2018. In making this assessment, our management used the criteria for effective internal control over financial reporting described in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management has determined that, as of December 31, 2016,2018, the Company's internal control over financial reporting is effective. The effectiveness of our internal control over financial reporting as of December 31, 20162018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report, included herein.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
The Company monitors and evaluates on an ongoing basis its 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(d), IAC management, including the Chairman and Senior Executive, the Chief Executive Officer and the Chief Financial Officer, also conducted an evaluation of the Company's internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 20162018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter ended December 31, 2016.2018.
Report of Independent Registered Public Accounting Firm
The
To the Shareholders and the Board of Directors and Shareholders of IAC/InterActiveCorp
Opinion on Internal Control over Financial Reporting
We have audited IAC/InterActiveCorp'sInterActiveCorp and subsidiaries’ internal control over financial reporting as of December 31, 2016,2018, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, IAC/InterActiveCorp'sInterActiveCorp and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a), and our report dated March 1, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management'sManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company'sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, IAC/InterActiveCorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of IAC/InterActiveCorp and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 28, 2017 expressed an unqualified opinion thereon./s/ ERNST & YOUNG LLP
New York, New York
February 28, 2017March 1, 2019
Item 9B. Other Information
Not applicable.
PART III
The information required by Part III (Items 10, 11, 12, 13 and 14) has been incorporated herein by reference to IAC's definitive Proxy Statement to be used in connection with its 20172019 Annual Meeting of Stockholders (the "2017"2019 Proxy Statement"), as set forth below in accordance with General Instruction G(3) of Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Items 401 and 405 of Regulation S-K relating to directors and executive officers of IAC and their compliance with Section 16(a) of the Exchange Act is set forth in the sections entitled "Information Concerning Director Nominees" and "Information Concerning IAC Executive Officers Who Are Not Directors," and "Section 16(a) Beneficial Ownership Reporting Compliance," respectively, in the 20172019 Proxy Statement and is incorporated herein by reference. The information required by Item 406 of Regulation S-K relating to IAC's Code of Ethics is set forth under the caption "Part I-Item 1-Business-Description of IAC Businesses-Additional Information-Code of Ethics" of this annual report and is incorporated herein by reference. The information required by subsections (c)(3), (d)(4) and (d)(5) of Item 407 of Regulation S-K is set forth in the sections entitled "Corporate Governance" and "The Board and Board Committees" in the 20172019 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K relating to executive and director compensation and pay ratio disclosure is set forth in the sections entitled "Executive Compensation," "Director Compensation" and "Director Compensation""Pay Ratio Disclosure" in the 20172019 Proxy Statement and is incorporated herein by reference. The information required by subsections (e)(4) and (e)(5) of Item 407 of Regulation S-K relating to certain compensation committee matters is set forth in the sections entitled "The Board and Board Committees," "Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" in the 20172019 Proxy Statement and is incorporated herein by reference; provided, that the information set forth in the section entitled "Compensation Committee Report" shall be deemed furnished herein and shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding ownership of IAC common stock and Class B common stock required by Item 403 of Regulation S-K and securities authorized for issuance under IAC's various equity compensation plans required by Item 201(d) of Regulation S-K is set forth in the sections entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information," respectively, in the 20172019 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions involving IAC required by Item 404 of Regulation S-K and director independence determinations required by Item 407(a) of Regulation S-K is set forth in the sections entitled "Certain Relationships and Related Person Transactions" and "Corporate Governance," respectively, in the 20172019 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by Item 9(e) of Schedule 14A regarding the fees and services of IAC's independent registered public accounting firm and the pre-approval policies and procedures applicable to services provided to IAC by such firm is set forth in the sections entitled "Fees Paid to Our Independent Registered Public Accounting Firm" and "Audit and Non-Audit Services Pre-Approval Policy," respectively, in the 20172019 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements of IAC
Report of Independent Registered Public Accounting Firm: Ernst & Young LLP.
Consolidated Balance Sheet as of December 31, 20162018 and 2015.2017.
Consolidated Statement of Operations for the Years Ended December 31, 2016, 20152018, 2017 and 2014.2016.
Consolidated Statement of Comprehensive Operations for the Years Ended December 31, 2016, 20152018, 2017 and 2014.2016.
Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 2016, 20152018, 2017 and 2014.2016.
Consolidated Statement of Cash Flows for the Years Ended December 31, 2016, 20152018, 2017 and 2014.2016.
Notes to Consolidated Financial Statements.
(2) Consolidated Financial Statement Schedule of IAC
|
| | |
Schedule Number | | |
| II | | Valuation and Qualifying Accounts. |
All other financial statements and schedules not listed have been omitted since the required information is either included in the Consolidated Financial Statements or the notes thereto, is not applicable or is not required.
(3) Exhibits
The documents set forth below, numbered in accordance with Item 601 of Regulation S-K, are filed herewith, incorporated herein by reference to the location indicated or furnished herewith.
|
| | | | | |
Exhibit No. | | Description | | Location |
| 2.1 |
| | Stock Purchase Agreement and Plan of Merger, dated as of July 13, 2015,May 1, 2017, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 26, 2017, by and among Match.comAngie’s List, Inc., Plentyoffish MediaIAC/InterActiveCorp, ANGI Homeservices Inc., Markus Frind, Markus Frind Family Trust No. 2, and Frind Enterprises Ltd.Casa Merger Sub, Inc.
| | Exhibit 2.1 |
| 3.1 |
| | Restated Certificate of Incorporation of IAC/InterActiveCorp. | | |
| 3.2 |
| | Certificate of Amendment of the Restated Certificate of Incorporation of IAC/InterActiveCorp (dated as of August 20, 2008). | | |
| 3.3 |
| | Amended and Restated By-laws of IAC/InterActiveCorp (amended and restated as of December 1, 2010). | | |
| 3.4 |
| | Certificate of Designations of Series C Cumulative Preferred Stock. | | |
| 3.5 |
| | Certificate of Designations of Series D Cumulative Preferred Stock. | | |
| 4.1 |
| | Indenture for 4.75% Senior Notes due 2022, dated as of December 21, 2012, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | |
| 4.2 |
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of May 30, 2013, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee.Trustee, with a schedule of subsequent Guarantors. | | |
| 4.3 |
| | Indenture for 4.875%0.875% Senior Exchangeable Notes due 2018,2022, dated as of November 15, 2013,October 2, 2017, among IAC FinanceCo, Inc., IAC/InterActiveCorp the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.1 to the Registrant's Registration Statement on Form S-4, filed on December 13, 2013. |
4.4 |
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of March 12, 2014, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014.
|
4.5 |
| | Supplemental Indenture for 4.875% Senior Notes due 2018, dated as of March 12, 2014, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014.
|
4.6 |
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of May 1, 2014, among IAC/InterActiveCorp, the Guarantor named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014.
|
4.7 |
| | Supplemental Indenture for 4.875% Senior Notes due 2018, dated as of May 1, 2014, among IAC/InterActiveCorp, the Guarantor named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014.
|
4.8 |
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of May 15, 2014, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014.
|
4.9 |
| | Supplemental Indenture for 4.875% Senior Notes due 2018, dated as of May 15, 2014, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014.
|
|
| | | | | |
4.10 |
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of October 30, 2015, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on November 20, 2015.
|
4.11 |
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of May 11, 2016, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee.(1)
| | |
4.12 |
| | Supplemental Indenture for 4.875% Senior Notes due 2018, dated as of May 11, 2016, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee.(1)
| | |
4.13 |
| | Indenture, dated November 16, 2015, between Match Group, Inc. and Computershare Trust Company, N.A., as Trustee. | |
October 6, 2017.
|
4.144.4 |
| | Indenture for 6.375% Senior Notes, dated June 1, 2016, between Match Group, Inc. and Computershare Trust Company, N.A., as Trustee.
| |
|
| 4.5 |
| | Indenture for 5.00% Senior Notes, dated as of December 4, 2017, between Match Group, Inc. and Computershare Trust Company, N.A., as Trustee.
| | |
| 4.6 |
| | Registration Rights Agreement, dated as of October 2, 2017, among IAC/InterActiveCorp, IAC FinanceCo, Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC
| |
|
| 10.1 |
| | Amended and Restated Governance Agreement, dated as of August 9, 2005, among the Registrant, Liberty Media Corporation and Barry Diller. | | |
| 10.2 |
| | Second Amended and Restated Governance Agreement, by and among IAC/InterActiveCorp, a Delaware corporation, Barry Diller and other persons signatory thereto, dated as of November 1, 2016 | | Exhibit 10.1 to the Registrant's Current Report on Form 8-K/A, filed on November 7, 2016. |
10.3 |
| | Letter Agreement, dated as of December 1, 2010, by and among the Registrant, Liberty Media Corporation, Liberty USA Holdings, LLC and Barry Diller. | |
|
10.410.3 |
| | Letter Agreement, dated as of December 1, 2010, by and between the Registrant and Barry Diller. | | |
| 10.4 |
| | IAC/InterActiveCorp 2018 Stock and Annual Incentive Plan.(1) | | |
|
| | | | | |
|
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2018 Stock and Annual Incentive Plan.(1)(2) | | |
|
| | Form of Terms and Conditions for Restricted Stock Units granted under the IAC/InterActiveCorp 2018 Stock and Annual Incentive Plan.(1)(2) | | |
| 10.7 |
| | IAC/InterActiveCorp 2013 Stock and Annual Incentive Plan.(2)(1) | | |
10.610.8 |
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2013 Stock and Annual Incentive Plan.(2)(1) | | |
10.710.9 |
| | Form of Terms and Conditions for Restricted Stock Units granted under the IAC/InterActiveCorp 2013 Stock and Annual Incentive Plan.(2)(1) | | |
10.810.10 |
| | IAC/InterActiveCorp 2008 Stock and Annual Incentive Plan.(2)(1) | |
|
10.910.11 |
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2008 Stock and Annual Incentive Plan.(2)(1) | | |
10.1010.12 |
| | Form of Terms and Conditions for Restricted Stock Units granted under the IAC/InterActiveCorp 2008 Stock and Annual Incentive Plan.(2)(1) | | |
10.1110.13 |
| | IAC/InterActiveCorp 2005 Stock and Annual Incentive Plan.(2)(1) | | |
10.1210.14 |
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2005 Stock and Annual Incentive Plan.(2)(1) | | |
10.1310.15 |
| | Summary of Non-Employee Director Compensation Arrangements.(2)(1) | | |
2009.
|
| | | | | |
10.1410.16 |
| | 2011 IAC/InterActiveCorp Deferred Compensation Plan for Non-Employee Directors.(2)(1) | | |
|
| | | | | |
10.1510.17 |
| | Equity and Bonus Compensation Arrangement, dated as of August 24, 1995, between Barry Diller and the Registrant. | | |
| 10.18 |
| | Employment Agreement between Joseph Levin and the Registrant, dated as of November 21, 2017.(1) | |
|
| 10.19 |
| | Second Amended and Restated Employment Agreement between Victor A. Kaufman and the Registrant, dated as of March 15, 2012.(2)(1)
| |
|
10.16 |
| | Employment Agreement between Gregg Winiarski and the Registrant, dated as of February 26, 2010.(2) | | Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010. |
10.1710.20 |
| | Employment Agreement between Glenn H. Schiffman and the Registrant, dated as of April 7, 2016.(2)(1)
| |
|
10.1810.21 |
| | Google ServicesEmployment Agreement between Mark Stein and the Registrant, dated as of January 1, 2008, between the Registrant and Google Inc.June 28, 2018.(1)
| | |
10.1910.22 |
| | Amendment No. 4 to Google ServicesEmployment Agreement between Gregg Winiarski and the Registrant, dated as of April 1, 2011, between the Registrant and Google Inc.February 26, 2010.(1) | | |
10.2010.23 |
| | Google Services Agreement, dated as of October 26, 2015, between the Registrant and Google Inc.(3) | | |
|
10.21 | | | | | |
| 10.24 |
| | Second Amended and Restated Credit Agreement, dated as of October 7,November 5, 2018, by and among IAC Group, LLC, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.
| | |
| 10.25 |
| | Amended and Restated Credit Agreement, dated as of November 16, 2015, among IAC/InterActiveCorp,Match Group, Inc., as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto.(4)
| |
|
10.2210.26 |
| | Amendment No. 3, dated as of December 8, 2016, to the Credit Agreement dated as of October 7, 2015, as amended and restated as of November 16, 2015, as further amended as of December 16, 2015, among Match Group, Inc., as borrower,Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agentAdministrative Agent, and the other parties thereto.(4)
| | |
| 10.27 |
| | Amendment No. 4, dated as of August 14, 2017, to the Credit Agreement dated as of October 7, 2015, as amended and restated as of November 16, 2015, as further amended as of December 16, 2015, as further amended December 8, 2016, among Match Group, Inc., as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto.
| |
|
10.2310.28 |
| | Amendment No. 5, dated as of December 7, 2018, to the Credit Agreement dated as of October 7, 2015, as amended and restated as of November 16, 2015, as further amended as of December 16, 2015, as further amended December 8, 2016 and as further amended August 14, 2017, among Match Group, Inc., as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto.
| |
|
| 10.29 |
| | Amended and Restated Credit Agreement, dated as of November 5, 2018, by and among ANGI Homeservices Inc., the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.
| | |
| 10.30 |
| | Master Transaction Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. and IAC/InterActiveCorp.Inc.. | | |
10.2410.31 |
| | Employee Matters Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. and IAC/InterActiveCorp. | | |
10.2510.32 |
| | Amendment No.1 to Employee Matters Agreement, dated as of April 13, 2016, by and between IAC/InterActiveCorp and Match Group, Inc. and IAC/InterActiveCorp.
| |
|
10.2610.33 |
| | Investor Rights Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. and IAC/InterActiveCorp. | | |
10.2710.34 |
| | Tax Sharing Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. and IAC/InterActiveCorp. | | |
10.2810.35 |
| | Services Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. and IAC/InterActiveCorp. | | |
| 10.36 |
| | Contribution Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
| 10.37 |
| | Employee Matters Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
|
| | | | | |
| 10.38 |
| | Investor Rights Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
| 10.39 |
| | Tax Sharing Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
| 10.40 |
| | Services Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
|
| | Subsidiaries of the Registrant as of December 31, 2016.(1)2018.(2) | | |
|
| | Consent of Ernst & Young LLP.(1)(2) | | |
|
| | | | | |
|
| | Certification of the Chairman and Senior Executive pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)(2) | | |
|
| | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)(2) | | |
|
| | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)(2) | | |
|
| | | | | |
|
| | 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 of 2002.(5)(4) | | |
|
| | 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 of 2002.(5)(4) | | |
|
| | 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 of 2002.(5)(4) | | |
| 101.INS |
| | XBRL Instance (2) | | |
| 101.SCH |
| | XBRL Taxonomy Extension Schema (2) | | |
| 101.CAL |
| | XBRL Taxonomy Extension Calculation (2) | | |
| 101.DEF |
| | XBRL Taxonomy Extension Definition (2) | | |
| 101.LAB |
| | XBRL Taxonomy Extension Labels (2) | | |
| 101.PRE |
| | XBRL Taxonomy Extension Presentation (2) | | |
| |
(2) | Reflects management contracts and management and director compensatory plans. |
| |
| (3) | Certain portions of this document have been omitted pursuant to a confidential treatment request. |
| |
| (4) | Certain schedules and similar attachments have been omitted and the Registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| | | | |
February 28, 2017March 1, 2019 | | IAC/INTERACTIVECORP |
| | | By: | | /s/ GLENN H. SCHIFFMAN |
| | | | | Glenn H. Schiffman |
| | | | | Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 28, 2017:March 1, 2019: |
| | |
| Signature | | Title |
| | | |
| /s/ BARRY DILLER | | Chairman of the Board, Senior Executive and Director |
| Barry Diller | | |
| | | |
| /s/ JOSEPH LEVIN | | Chief Executive Officer and Director |
| Joseph Levin | | |
| | | |
| /s/ VICTOR A. KAUFMAN | | Vice Chairman and Director |
| Victor A. Kaufman | | |
| /s/ GLENN H. SCHIFFMAN | | Executive Vice President and Chief Financial Officer |
| Glenn H. Schiffman | | |
| | | |
| /s/ MICHAEL H. SCHWERDTMAN | | Senior Vice President and Controller (Chief Accounting Officer) |
| Michael H. Schwerdtman | | |
| | | |
| /s/ EDGAR BRONFMAN, JR. | | Director |
| Edgar Bronfman, Jr. | | |
| | | |
| /s/ CHELSEA CLINTON | | Director |
| Chelsea Clinton | | |
| | | |
| /s/ MICHAEL D. EISNER | | Director |
| Michael D. Eisner | | |
| | | |
| /s/ BONNIE S. HAMMER | | Director |
| Bonnie S. Hammer | | |
| | | |
| | | |
| /s/ BRYAN LOURD | | Director |
| Bryan Lourd | | |
| | | |
| /s/ DAVID S. ROSENBLATT | | Director |
| David S. Rosenblatt | | |
| | | |
| /s/ ALAN G. SPOON | | Director |
| Alan G. Spoon | | |
| | | |
| /s/ ALEXANDER VON FURSTENBERG | | Director |
| Alexander von Furstenberg | | |
| | | |
| /s/ RICHARD F. ZANNINO | | Director |
| Richard F. Zannino | | |
Schedule II
IAC/INTERACTIVECORP AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
| | | Description | Balance at Beginning of Period | | Charges to Earnings | | Charges to Other Accounts | | Deductions | | Balance at End of Period | Balance at Beginning of Period | | Charges to Earnings | | Charges to Other Accounts | | Deductions | | Balance at End of Period |
| | (In thousands) | (In thousands) |
| 2018 | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | | $ | 11,489 |
| | $ | 48,445 |
| (a) | $ | (573 | ) | | $ | (40,501 | ) | (d) | $ | 18,860 |
|
| Deferred tax valuation allowance | | 132,598 |
| | (20,746 | ) | (b) | 4,001 |
| (c) | — |
| | 115,853 |
|
| Other reserves | | 2,544 |
| | | | | | | | 7,734 |
|
| 2017 | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | | $ | 16,405 |
| | $ | 28,930 |
| (a) | $ | (1,006 | ) | | $ | (32,840 | ) | (d) | $ | 11,489 |
|
| Sales returns accrual | | 80 |
| | — |
| | (80 | ) | | — |
| | — |
|
| Deferred tax valuation allowance | | 88,170 |
| | 38,144 |
| (e) | 6,284 |
| (f) | — |
| | 132,598 |
|
| Other reserves | | 2,822 |
| | | | | | | | 2,544 |
|
| 2016 | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | $ | 16,528 |
| | $ | 19,070 |
| (a) | $ | (695 | ) | | $ | (18,498 | ) | (d) | $ | 16,405 |
| $ | 16,528 |
| | $ | 17,733 |
| (a) | $ | (695 | ) | | $ | (17,161 | ) | (d) | $ | 16,405 |
|
| Sales returns accrual | 828 |
| | 14,998 |
| | (962 | ) | | (14,784 | ) | | 80 |
| 828 |
| | 14,998 |
| | (962 | ) | | (14,784 | ) | | 80 |
|
| Deferred tax valuation allowance | 90,482 |
| | (837 | ) | (b) | (1,475 | ) | (c) | — |
| | 88,170 |
| 90,482 |
| | (837 | ) | (g) | (1,475 | ) | (h) | — |
| | 88,170 |
|
| Other reserves | 2,801 |
| | | | | | | | 2,822 |
| 2,801 |
| | | | | | | | 2,822 |
|
| 2015 | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | $ | 12,437 |
| | $ | 17,912 |
| (a) | $ | (536 | ) | | $ | (13,285 | ) | (d) | $ | 16,528 |
| |
| Sales returns accrual | 1,119 |
| | 17,569 |
| | — |
| | (17,860 | ) | | 828 |
| |
| Deferred tax valuation allowance | 98,350 |
| | (6,072 | ) | (e) | (1,796 | ) | (f) | — |
| | 90,482 |
| |
| Other reserves | 2,204 |
| | | | | | | | 2,801 |
| |
| 2014 | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | $ | 8,540 |
| | $ | 15,226 |
| (a) | $ | (116 | ) | | $ | (11,213 | ) | (d) | $ | 12,437 |
| |
| Sales returns accrual | 1,208 |
| | 19,743 |
| | — |
| | (19,832 | ) | | 1,119 |
| |
| Deferred tax valuation allowance | 62,353 |
| | 35,119 |
| (g) | 878 |
| (h) | — |
| | 98,350 |
| |
| Other reserves | 2,518 |
| | | | | | | | 2,204 |
| |
| |
| (a) | Additions to the allowance for doubtful accounts are charged to expense. Additions to the revenue reserves are charged against revenue. |
| |
| (b) | Amount is primarily related to a decrease in foreign tax credits subject to a valuation allowance and the realization of previously unbenefited capital losses, partially offset by an increase in state net operating losses and foreign interest deduction carryforwards. |
| |
| (c) | Amount is primarily related to acquired federal and state NOLs, partially offset by currency translation adjustments on foreign NOLs. |
| |
| (d) | Write-off of fully reserved accounts receivable. |
| |
| (e) | Amount is due primarily to the establishment of foreign NOLs related to an acquisition. |
| |
| (f) | Amount is primarily related to acquired state NOLs, acquired foreign tax credits and currency translation adjustments on foreign NOLs. |
| |
| (g) | Amount is primarily related to other-than-temporary impairment charges for certain cost method investments and an increase in federal capital and net operating losses,NOLs, partially offset by a decrease in state net operating losses,NOLs, foreign tax credits, and foreign net operating losses.NOLs. |
| |
(c)(h) | Amount is primarily related to the realization of previously unbenefited unrealized losses on available-for-sale marketable equity securities included in accumulated other comprehensive income and currency translation adjustments on foreign net operating losses. |
| |
(d) | Write-off of fully reserved accounts receivable. |
| |
(e) | Amount is primarily related to the release of a valuation allowance on the other-than-temporary impairment charges for certain cost method investments, partially offset by an increase in federal, foreign and state net operating and capital losses. |
| |
(f) | Amount is primarily related to a net reduction in unbenefited unrealized losses on available-for-sale marketable equity securities included in accumulated other comprehensive income and currency translation adjustments on foreign net operating losses. |
| |
(g) | Amount is primarily related to other-than-temporary impairment charges for certain cost method investments and an increase in federal net operating losses, foreign tax credits, and state tax credits. |
| |
(h) | Amount is primarily related to unbenefited unrealized losses on long-term marketable equity securities included in accumulated other comprehensive income, partially offset by currency translation adjustments on foreign net operating losses.NOLs. |
