Document


As filed with the Securities and Exchange Commission on November 9, 2017


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________                            
Commission File No. 0-20570
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11883678&doc=16
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
Delaware
 (State or other jurisdiction of
incorporation or organization)
 
59-2712887
(I.R.S. Employer
Identification No.)
 555 West 18th Street, New York, New York 10011
 (Address of registrant's principal executive offices)
 (212) 314-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o(Do not check if a smaller
reporting company)
 
Smaller reporting
 company o
 
Emerging growth
company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of November 3, 2017, the following shares of the registrant's common stock were outstanding:
Common Stock
76,195,855

Class B Common Stock
5,789,499

Total outstanding Common Stock
81,985,354


The aggregate market value of the voting common stock held by non-affiliates of the registrant as of November 3, 2017 was $9,734,482,138. For the purpose of the foregoing calculation only, all directors and executive officers of the registrant are assumed to be affiliates of the registrant.



TABLE OF CONTENTS
 
 
Page
Number
 


2

Table of Contents

PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
IAC/INTERACTIVECORP
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
September 30, 2017
 
December 31, 2016
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
1,255,317

 
$
1,329,187

Marketable securities

 
89,342

Accounts receivable, net of allowance of $12,847 and $16,405, respectively
271,209

 
220,138

Other current assets
200,377

 
204,068

Total current assets
1,726,903

 
1,842,735

 
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $314,703 at September 30, 2017 and $311,834 at December 31, 2016
320,277

 
306,248

Goodwill
2,501,589

 
1,924,052

Intangible assets, net
660,103

 
355,451

Long-term investments
120,806

 
122,810

Deferred income taxes
129,879

 
2,511

Other non-current assets
81,398

 
92,066

TOTAL ASSETS
$
5,540,955

 
$
4,645,873

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

 
$
20,000

Accounts payable
104,806

 
62,863

Deferred revenue
343,413

 
285,615

Accrued expenses and other current liabilities
387,307

 
344,910

Total current liabilities
835,526

 
713,388

 
 
 
 
Long-term debt, net of current portion
1,649,267

 
1,582,484

Income taxes payable
33,290

 
33,528

Deferred income taxes
36,023

 
228,798

Other long-term liabilities
37,165

 
44,178

 
 
 
 
Redeemable noncontrolling interests
40,981

 
32,827

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000 shares; issued 259,875 and 255,672 shares, respectively and outstanding 76,080 and 72,595 shares, respectively
260

 
256

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
12,192,645

 
11,921,559

Retained earnings
562,234

 
290,114

Accumulated other comprehensive loss
(99,513
)
 
(166,123
)
Treasury stock 194,163 and 193,445 shares, respectively
(10,226,721
)
 
(10,176,600
)
Total IAC shareholders' equity
2,428,921

 
1,869,222

Noncontrolling interests
479,782

 
141,448

Total shareholders' equity
2,908,703

 
2,010,670

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
5,540,955

 
$
4,645,873

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

3




IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenue
$
828,434

 
$
764,102

 
$
2,356,654

 
$
2,328,720

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
166,290

 
179,131

 
451,281

 
543,262

Selling and marketing expense
352,879

 
292,996

 
1,023,394

 
972,490

General and administrative expense
235,580

 
124,469

 
529,397

 
404,296

Product development expense
70,645

 
49,704

 
180,835

 
162,367

Depreciation
17,263

 
17,951

 
55,490

 
51,321

Amortization of intangibles
4,366

 
14,267

 
22,151

 
65,062

Goodwill impairment

 

 

 
275,367

Total operating costs and expenses
847,023

 
678,518

 
2,262,548

 
2,474,165

Operating (loss) income
(18,589
)
 
85,584

 
94,106

 
(145,445
)
Interest expense
(25,036
)
 
(27,118
)
 
(74,556
)
 
(82,622
)
Other (expense) income, net
(10,216
)
 
11,700

 
(7,700
)
 
20,405

(Loss) earnings before income taxes
(53,841
)
 
70,166

 
11,850

 
(207,662
)
Income tax benefit (provision)
279,480

 
(17,826
)
 
322,809

 
77,394

Net earnings (loss)
225,639

 
52,340

 
334,659

 
(130,268
)
Net earnings attributable to noncontrolling interests
(45,996
)
 
(9,178
)
 
(62,539
)
 
(13,063
)
Net earnings (loss) attributable to IAC shareholders
$
179,643

 
$
43,162

 
$
272,120

 
$
(143,331
)
 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic earnings (loss) per share
$
2.22

 
$
0.54

 
$
3.43

 
$
(1.78
)
Diluted earnings (loss) per share
$
1.79

 
$
0.49

 
$
2.82

 
$
(1.78
)
 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
414

 
$
597

 
$
1,389

 
$
1,904

Selling and marketing expense
20,970

 
1,465

 
24,420

 
5,026

General and administrative expense
94,432

 
18,248

 
153,123

 
59,957

Product development expense
18,656

 
3,351

 
28,430

 
15,723

Total stock-based compensation expense
$
134,472

 
$
23,661

 
$
207,362

 
$
82,610

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

4




IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net earnings (loss)
$
225,639

 
$
52,340

 
$
334,659

 
$
(130,268
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment (a)
44,126

 
(4,808
)
 
84,824

 
7,596

Change in unrealized gains and losses of available-for-sale securities (net of tax benefit of $3,846 for the nine months ended September 30, 2017, and net of tax benefits of $85 and $868 for the three and nine months ended September 30, 2016, respectively) (b)

 
(145
)
 
(4,026
)
 
1,510

Total other comprehensive income (loss), net of tax
44,126

 
(4,953
)
 
80,798

 
9,106

Comprehensive income (loss)
269,765

 
47,387

 
415,457

 
(121,162
)
Comprehensive income attributable to noncontrolling interests
(52,897
)
 
(9,502
)
 
(76,727
)
 
(13,881
)
Comprehensive income (loss) attributable to IAC shareholders
$
216,868

 
$
37,885

 
$
338,730

 
$
(135,043
)
________________________
(a) 
The nine months ended September 30, 2017 and 2016 include amounts reclassified out of other comprehensive income into earnings. See Note 7—Accumulated Other Comprehensive Loss for additional information.
(b) 
The nine months ended September 30, 2017 and three and nine months ended September 30, 2016 include unrealized gains reclassified out of other comprehensive income into earnings. See Note 7—Accumulated Other Comprehensive Loss for additional information.




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

5




IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 2017
(Unaudited)
 
 
 
 
IAC Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Class B
Convertible
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
(Loss) Income
 
 
 
Total IAC
Shareholders'
Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
 
Additional
Paid-in
Capital
 
 Retained Earnings
 
 
Treasury
Stock
 
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
(In thousands)
 
 
Balance at December 31, 2016
$
32,827

 
 
$
256

 
255,672

 
$
16

 
16,157

 
$
11,921,559

 
$
290,114

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

 
$
141,448

 
$
2,010,670

Net earnings
3,857

 
 

 

 

 

 

 
272,120

 

 

 
272,120

 
58,682

 
330,802

Other comprehensive income, net of tax
831

 
 

 

 

 

 

 

 
66,610

 

 
66,610

 
13,357

 
79,967

Stock-based compensation expense
1,577

 
 

 

 

 

 
53,491

 

 

 

 
53,491

 
136,079

 
189,570

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

 
 
4

 
4,203

 

 

 
11,881

 

 

 

 
11,885

 

 
11,885

Purchase of treasury stock

 
 

 

 

 

 

 

 

 
(50,121
)
 
(50,121
)
 

 
(50,121
)
Purchase of redeemable noncontrolling interests
(12,428
)
 
 

 

 

 

 

 

 

 

 

 

 

Purchase of noncontrolling interests

 
 

 

 

 

 

 

 

 

 

 
(633
)
 
(633
)
Adjustment of redeemable noncontrolling interests to fair value
2,977

 
 

 

 

 

 
(2,977
)
 

 

 

 
(2,977
)
 

 
(2,977
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group

 
 

 

 

 

 
(436,831
)
 

 

 

 
(436,831
)
 
(3,970
)
 
(440,801
)
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
17,692

 
 

 

 

 

 

 

 

 

 

 

 

Other
(6,352
)
 
 

 

 

 

 
47

 

 

 

 
47

 
823

 
870

Balance at September 30, 2017
$
40,981

 
 
$
260

 
259,875

 
$
16

 
16,157

 
$
12,192,645

 
$
562,234

 
$
(99,513
)
 
$
(10,226,721
)
 
$
2,428,921

 
$
479,782

 
$
2,908,703

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

6




IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
334,659

 
$
(130,268
)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
207,362

 
82,610

Depreciation
55,490

 
51,321

Amortization of intangibles
22,151

 
65,062

Goodwill impairment

 
275,367

Deferred income taxes
(344,120
)
 
(99,955
)
Acquisition-related contingent consideration fair value adjustments
4,945

 
7,993

Gain from the sale of businesses and investments, net
(24,031
)
 
(13,416
)
Impairment of long-term investments
7,746

 
4,894

Acquisition-related contingent consideration payment
(11,140
)
 

Bad debt expense
20,935

 
12,493

Other adjustments, net
22,975

 
(5,619
)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable
(78,612
)
 
32,950

Other assets
(17,534
)
 
(19,775
)
Accounts payable and other current liabilities
47,547

 
(63,669
)
Income taxes payable and receivable
4,433

 
(37,081
)
Deferred revenue
44,791

 
31,352

Net cash provided by operating activities
297,597

 
194,259

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(69,113
)
 
(2,524
)
Capital expenditures
(56,519
)
 
(62,739
)
Investments in time deposits

 
(87,500
)
Proceeds from maturities of time deposits

 
87,500

Proceeds from maturities and sales of marketable debt securities
114,350

 
79,210

Purchases of marketable debt securities
(24,909
)
 
(229,246
)
Purchases of investments
(9,105
)
 
(7,211
)
Net proceeds from the sale of businesses and investments
125,220

 
110,536

Other, net
1,319

 
5,562

Net cash provided by (used in) investing activities
81,243

 
(106,412
)
Cash flows from financing activities:
 
 
 
Purchase of IAC treasury stock
(56,424
)
 
(247,256
)
Proceeds from Match Group 6.375% Senior Notes offering

 
400,000

Proceeds from Match Group Term Loan
75,000

 

Principal payment on Match Group Term Loan

 
(410,000
)
Debt issuance costs
(2,637
)
 
(5,048
)
Repurchases of IAC Senior Notes
(31,590
)
 
(126,271
)
Proceeds from the exercise of IAC stock options
69,065

 
19,536

Withholding taxes paid on behalf of IAC net settled stock-based awards
(57,180
)
 
(26,684
)
Proceeds from the exercise of Match Group stock options
57,705

 
30,246

Cash payments to purchase fully vested equity awards and pay withholding taxes on behalf of Match Group employees on net settled stock-based awards
(501,437
)
 
(29,779
)
Purchase of noncontrolling interests
(13,011
)
 
(2,529
)
Acquisition-related contingent consideration payments
(27,289
)
 
(2,180
)
Funds returned from escrow for MyHammer tender offer
10,604

 

Decrease in restricted cash related to bond redemptions
20,141

 
20,000

Other, net
(5,002
)
 
(766
)
Net cash used in financing activities
(462,055
)
 
(380,731
)
Total cash used
(83,215
)
 
(292,884
)
Effect of exchange rate changes on cash and cash equivalents
9,345

 
1,221

Net decrease in cash and cash equivalents
(73,870
)
 
(291,663
)
Cash and cash equivalents at beginning of period
1,329,187

 
1,481,447

Cash and cash equivalents at end of period
$
1,255,317

 
$
1,189,784

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

7

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


NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
IAC is a leading media and Internet company comprised of widely known consumer brands such as Vimeo, Dotdash (formerly About.com), Dictionary.com, The Daily Beast and Investopedia, along with ANGI Homeservices Inc., which operates HomeAdvisor and Angie's List, and Match Group's online dating portfolio, which includes Match, Tinder, PlentyOfFish and OkCupid.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
On September 29, 2017, the Company completed its previously announced combination (the "Combination") of the businesses in the Company's HomeAdvisor segment and Angie's List, Inc. ("Angie's List") under a new publicly traded company called ANGI Homeservices Inc. ("ANGI Homeservices"). At September 30, 2017, IAC owned 87.1% and 98.5% of the economic and voting interest, respectively, of ANGI Homeservices. See "Note 3—Business Combination" for further information. In connection with the transaction, the Company changed the name of the HomeAdvisor segment to ANGI Homeservices and year-over-year comparisons for financial results for this segment are to the historical results of the HomeAdvisor segment (adjusted to reflect corporate allocations from IAC).
In connection with the Combination and in consideration for the transfer by USANi LLC, a wholly-owned subsidiary of the Company ("USANi"), to the Company of all common membership units of HomeAdvisor International, LLC held by USANi, on September 29, 2017, the Company issued a total of 67,633 shares of Series C Cumulative Preferred Stock (the “Series C Preferred Stock”) to USANi. The Company established the Series C Preferred Stock, par value $0.01 per share, on September 28, 2017. The Series C Preferred Stock is entitled to receive a cash dividend of $75.00 per share per annum, payable quarterly in arrears. The outstanding Series C Preferred Stock eliminates in the Company's consolidated financial statements.
On March 31, 2017, Match Group sold its non-dating business, consisting of The Princeton Review. The non-dating business does not meet the threshold to be reflected as a discontinued operation at the IAC level. The Company moved the non-dating business to its “Other” segment effective March 31, 2017 and prior period segment data has been recast to conform to this presentation.
Basis of Presentation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
Basis of Consolidation and Accounting for Investments
The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. Intercompany transactions and accounts have been eliminated.
Investments in the common stock or in-substance common stock of entities in which the Company has the ability to exercise significant influence over the operating and financial matters of the investee, but does not have a controlling financial interest, are accounted for using the equity method and are included in "Long-term investments" in the accompanying consolidated balance sheet.
In management's opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016 included in the Company's Current Report on Form 8-K dated July 18, 2017.

8

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

Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the fair value of long-term investments; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; the fair value of acquisition-related contingent consideration arrangements; the liabilities for uncertain tax positions; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant. Actual results could differ from these estimates.
Certain Risks and Concentrations
A meaningful portion of the Company's revenue is derived from online advertising, the market for which is highly competitive and rapidly changing. Significant changes in this industry or changes in advertising spending behavior or in customer buying behavior could adversely affect our operating results. Most of the Company's online advertising revenue is attributable to a services agreement with Google Inc. ("Google"). For the three and nine months ended September 30, 2017, revenue from Google represents 21% and 23%, respectively, of the Company's consolidated revenue. For the three and nine months ended September 30, 2016, revenue from Google represents 23% and 27%, respectively, of the Company's consolidated revenue.
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. The services agreement requires that the 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 three and nine months ended September 30, 2017, revenue earned from Google was $176.8 million and $539.2 million, respectively. For the three and nine months ended September 30, 2016, revenue earned from Google was $172.0 million and $638.2 million, respectively. This revenue is earned by the businesses comprising the Applications and Publishing segments. For the three and nine months ended September 30, 2017, revenue earned from Google represents 82% and 83% of Applications revenue and 72% and 71% of Publishing revenue. For the three and nine months ended September 30, 2016, revenue earned from Google represents 85% and 87% of Applications revenue and 66% and 76% of Publishing revenue, respectively. Accounts receivable related to revenue earned from Google totaled $62.0 million and $65.8 million at September 30, 2017 and December 31, 2016, respectively.
Recent Accounting Pronouncements
Accounting Pronouncements not yet adopted by the Company
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. ASU No. 2014-09 was subsequently amended during 2015, 2016 and 2017; these amendments provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, narrow-scope improvements and practical expedients.
ASU No. 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers. This five-step model includes (1) identifying the contract(s) with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when each performance obligation is satisfied. More

9

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

specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU No. 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or using the modified retrospective approach with the cumulative effect recognized as of the date of initial application.
While the Company’s evaluation of the impact the adoption of ASU No. 2014-09 on its consolidated financial statements continues, it has progressed to the point where we have reached certain preliminary determinations.
The Company will adopt ASU No. 2014-09 using the modified retrospective approach effective January 1, 2018. Therefore, the cumulative effect of adoption will be reflected as an adjustment to beginning retained earnings in the Form 10-Q for the period ending March 31, 2018.
The Company’s assessment of the accounting for mobile app store fees incurred by Match Group in connection with obtaining members is still preliminary and ongoing. Match Group currently capitalizes these costs and amortizes them over the period of the applicable membership periods, which generally range from one to six months. The Company’s initial conclusions in applying ASU No. 2014-09 to these costs were: (1) these costs represent the incremental direct costs of obtaining a membership contract and (2) would, therefore, continue to be capitalized and amortized as incurred. The Company is reassessing this conclusion in light of its finding that there are divergent and evolving interpretations of the correct application of ASU No. 2014-09 to these costs. The total capitalized mobile app store fees were $19.8 million as of September 30, 2017.
 
Within ANGI Homeservices, the effect of the adoption of ASU No. 2014-09 on HomeAdvisor will be that sales commissions, which represent the incremental direct costs of obtaining a service professional contract, will be capitalized and amortized over the average life of a service professional. These costs are expensed as incurred today. Prior to the Combination, Angie's List capitalized sales commissions and amortized the cost over the term of the applicable advertising contract. Following the Combination, Angie's List accounting policies will be conformed to the Company's accounting policies and these costs will be expensed as incurred. Following the adoption of ASU No. 2014-09, these costs will be capitalized and amortized over the average life of a service professional.
Within Applications, the primary effect of the adoption of ASU No. 2014-09 will be to accelerate the recognition of the portion of the revenue of certain desktop applications sold by SlimWare that qualify as functional intellectual property under ASU No. 2014-09. This revenue is currently deferred and recognized over the applicable subscription term.
The Company does not expect the adoption of ASU No. 2014-09 to have a material effect on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the statement of financial position. The provisions of ASU No. 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach. The Company will adopt ASU No. 2016-02 effective January 1, 2019. The Company is currently evaluating the impact the adoption of this standard update will have on its consolidated financial statements.
Accounting Pronouncements adopted by the Company
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about the changes to the terms and conditions of a share-based payment award that require an entity to apply modification accounting in "Stock Compensation (Topic 718)." The provisions of ASU No. 2017-09 are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. The provisions of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoption date. The Company early adopted the provisions of ASU No. 2017-09 during the third quarter of 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. The provisions of ASU No. 2016-15 are effective for reporting periods beginning after December 15, 2017, including interim periods, and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable; early adoption is permitted. Upon adoption, cash payments made soon after the acquisition date of a business to settle a contingent consideration liability are classified as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities up to the amount of the contingent consideration liability recognized at the acquisition date and as cash outflows from operating activities for any excess. The Company early adopted the provisions of ASU No. 2016-15 on January 1, 2017. As a result, $11.1 million of an acquisition-related contingent consideration payment of $15.0 million, which was in excess of the liability initially recognized at the acquisition date, has been classified as a cash outflow within net cash provided by operating activities in the accompanying consolidated statement of cash flows for the nine months ended September 30, 2017.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company adopted the provisions of ASU No. 2016-09 on January 1, 2017. Excess tax benefits or deficiencies related to equity awards to employees upon the exercise of stock options and the vesting of restricted stock units after January 1, 2017 are (i) reflected in the consolidated statement of operations as a component of the provision for income taxes, rather than recognized in equity, and (ii) reflected as operating, rather than financing, cash flows in our consolidated statement of cash flows. Excess tax benefits for the nine months ended September 30, 2017 were $314.3 million. Excess tax benefits of $43.1 million for the nine months ended September 30, 2016 were reclassified in the consolidated statement of cash flows to conform to the current year presentation. Upon adoption, the calculation of fully diluted shares excludes excess tax benefits from the assumed proceeds in applying the treasury stock method; previously such benefits were included in the calculation. This change increased fully diluted shares by approximately 1.1 million and 2.0 million shares for the three and nine months ended September 30, 2017, respectively. The Company continues to account for forfeitures using an estimated forfeiture rate.
In January 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which is intended to simplify the accounting for goodwill impairment. The guidance eliminates 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 No. 2017-04 are to be applied using a prospective approach. The Company early adopted the provisions of ASU No. 2017-04 on January 1, 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or the liabilities for uncertain tax positions is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the three and nine months ended September 30, 2017, the Company recorded an income tax benefit of $279.5 million and $322.8 million, respectively. The income tax benefit for the three and nine months ended September 30, 2017 is due primarily to the effect of adopting the provisions of ASU No. 2016-09 on January 1, 2017. Under ASU No. 2016-09, excess tax benefits generated by the exercise, purchase or settlement of stock-based awards of $314.3 million for the nine months ended September 30, 2017 are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital. For the three and nine months ended September 30, 2016, the Company recorded an income tax provision of $17.8 million and an income tax benefit of $77.4 million, respectively, which represents effective income tax rates of 25% and 37%, respectively. The effective tax rate for the three months ended September 30, 2016 is lower than the statutory rate of 35% due primarily to foreign income taxed at lower rates. The effective tax rate for the nine months ended September 30, 2016 is higher than the statutory rate of 35% due primarily to foreign income taxed at lower rates, state taxes and the non-taxable gain on the sale of PriceRunner, partially offset by the non-deductible portion of the goodwill impairment at the Publishing segment.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At September 30, 2017 and December 31, 2016, the Company has accrued $3.3 million and $2.6 million, respectively, for the payment of interest. At both September 30, 2017 and December 31, 2016, the Company has accrued $1.7 million for penalties.
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing the Company’s federal income tax returns for the years ended December 31, 2010 through 2012. The statute of limitations for the years 2010 through 2013 has been extended to June 30, 2018. Various other jurisdictions are open to examination for tax years beginning with 2009. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
At September 30, 2017 and December 31, 2016, unrecognized tax benefits, including interest and penalties, are $43.0 million and $41.0 million, respectively. If unrecognized tax benefits at September 30, 2017 are subsequently recognized, $39.4 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2016 was $37.7 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $22.5 million by June 30, 2018, due to expirations of statutes of limitations; $22.0 million of which would reduce the income tax provision.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, available tax planning and historical experience, to the extent these items are applicable. As of September 30, 2017, the Company has a gross deferred tax asset of $221.5 million that the Company expects to fully utilize on a more likely than not basis.
NOTE 3—BUSINESS COMBINATION
On September 29, 2017, the Company completed its previously announced combination of the businesses in the Company's HomeAdvisor segment and Angie's List under a new publicly traded company called ANGI Homeservices. Through the Combination, ANGI Homeservices acquired 100% of the common stock of Angie's List on September 29, 2017 for a total purchase price valued at $781.4 million. Angie’s List is a nationwide marketplace for local services where consumers can research, hire, rate and review the providers of these services. Ratings and reviews assist members in identifying and hiring a provider for their local service needs. Angie’s List's services are provided in markets located across the continental United States.
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

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

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 three and nine months ended September 30, 2017, the Company included $0.7 million of revenue and $20.0 million of net losses in its consolidated statement of operations related to Angie's List. The Company is in the process of completing its determination of the fair values of assets acquired and liabilities assumed and the preliminary fair values are subject to revision. These fair values are expected to be finalized in the fourth quarter of 2017.
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of combination:
 
Angie's List
 
(In thousands)
Cash and cash equivalents
$
44,270

Other current assets
10,641

Property and equipment
16,341

Goodwill
545,396

Intangible assets
317,300

Total assets
933,948

Deferred revenue
(32,130
)
Other current liabilities
(46,106
)
Long-term debt—related party
(61,498
)
Deferred income taxes
(11,478
)
Other long-term liabilities
(1,352
)
Net assets acquired
$
781,384


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The purchase price was based on the expected financial performance of Angie's List, not on the value of the net identifiable assets at the time of combination. This resulted in a significant portion of the purchase price being attributed to goodwill because Angie's List is complementary and synergistic to the other North America businesses of ANGI Homeservices.
The preliminary estimated fair values of the identifiable intangible assets acquired at the date of combination are as follows:
 
Angie's List
 
(In thousands)
 
Weighted-average useful life
(years)
Indefinite-lived trade names and trademarks
$
137,000

 
Indefinite
Service providers
90,500

 
3
Developed technology
63,900

 
6
Memberships
15,900

 
3
User base
10,000

 
1
Total identifiable intangible assets acquired
$
317,300

 
 
Other 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 combination, as necessary. The fair value of deferred revenue was determined using an income approach that utilized a cost to fulfill analysis. The fair values of trade names and trademarks were determined using an income approach that utilized the relief from royalty methodology. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The fair values of the service providers and memberships were determined using an income approach that utilized the excess earnings methodology. The valuations of deferred 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.
Pro forma financial information
The unaudited pro forma financial information in the table below presents the combined results of the Company and Angie's List as if the Combination had occurred on January 1, 2016. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the Combination actually occurred on January 1, 2016. For the three and nine months ended September 30, 2017, pro forma adjustments include (i) reductions in stock-based compensation expense of $85.1 million and $52.8 million, respectively, and transaction related costs of $22.1 million and $25.6 million, respectively, 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 $11.4 million and $34.4 million, respectively. The stock-based compensation expense is related to the modification of previously issued HomeAdvisor vested equity awards, which were converted into ANGI Homeservices' equity awards, and the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination. The transaction related costs include severance and retention costs of $12.0 million related to the Combination. For the three and nine months ended September 30, 2016, pro forma adjustments include a reduction in revenue of $5.0 million and $31.4 million, respectively, due to the write-off of deferred revenue at the date of acquisition as well as increases in stock-based compensation expense of $19.7 million and $51.4 million, respectively, and amortization of intangibles of $14.0 million and $42.1 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenue
$
898,584

 
$
838,834

 
$
2,571,613

 
$
2,544,019

Net earnings (loss) attributable to IAC shareholders
244,400

 
12,237

 
313,054

 
(221,446
)
Basic earnings (loss) per share attributable to IAC shareholders
3.02

 
0.15

 
3.94

 
(2.76
)
Diluted earnings (loss) per share attributable to IAC shareholders
2.80

 
0.15

 
3.70

 
(2.76
)
NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
 
September 30,
 
December 31,
 
2017
 
2016
 
(In thousands)
Goodwill
$
2,501,589

 
$
1,924,052

Intangible assets with indefinite lives
460,333

 
320,645

Intangible assets with definite lives, net
199,770

 
34,806

Total goodwill and intangible assets, net
$
3,161,692

 
$
2,279,503

The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the nine months ended September 30, 2017:
 
Balance at
December 31, 2016
 
Additions
 
(Deductions)
 
Foreign
Exchange
Translation
 
Balance at
September 30, 2017
 
(In thousands)
Match Group
$
1,206,538

 
$
255

 
$

 
$
43,575

 
$
1,250,368

ANGI Homeservices
170,611

 
593,880

 

 
7,865

 
772,356

Video
25,239

 
6,384

 

 

 
31,623

Applications
447,242

 

 

 

 
447,242

Other
74,422

 

 
(74,430
)
 
8

 

Total
$
1,924,052

 
$
600,519

 
$
(74,430
)
 
$
51,448

 
$
2,501,589

The additions primarily relate to the acquisitions of Angie's List, MyBuilder and HomeStars (included in the ANGI Homeservices segment). The deductions relate to the sale of The Princeton Review (previously included in the 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, 2016:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Balance at
December 31, 2015
 
Additions
 
(Deductions)
 
Impairment
 
Foreign
Exchange
Translation
 
Balance at
December 31, 2016
 
(In thousands)
Match Group
$
1,218,607

 
$
603

 
$
(2,983
)
 
$

 
$
(9,689
)
 
$
1,206,538

ANGI Homeservices
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
136,482

 

 
(62,860
)
 

 
800

 
74,422

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 ANGI Homeservices 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). During the second quarter of 2016, the Company recorded impairment charges related to the entire $275.4 million balance of the Publishing reporting unit goodwill. The goodwill impairment charge at Publishing was driven by the impact from the new Google services agreement, traffic trends and monetization challenges and the corresponding impact on the current estimate of fair value.
The September 30, 2017 and December 31, 2016 goodwill balance reflects accumulated impairment losses of $598.0 million, $529.1 million and $11.6 million at Publishing, Applications and Connected Ventures (included in the Video segment), respectively.
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. At September 30, 2017 and December 31, 2016, intangible assets with definite lives are as follows:
 
September 30, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(Years)
 
(In thousands)
Advertiser and supplier relationships and other
$
119,029

 
$
(4,654
)
 
$
114,375

 
3.0
Technology
104,876

 
(32,348
)
 
72,528

 
4.9
Customer lists and user base
13,911

 
(2,973
)
 
10,938

 
1.1
Content
5,000

 
(3,723
)
 
1,277

 
5.0
Trade names
14,518

 
(13,866
)
 
652

 
2.7
Total
$
257,334

 
$
(57,564
)
 
$
199,770

 
3.7
 
December 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(Years)
 
(In thousands)
Advertiser and supplier relationships and other
$
7,230

 
$
(2,612
)
 
$
4,618

 
4.5
Technology
38,602

 
(27,667
)
 
10,935

 
3.4
Customer lists
12,485

 
(9,997
)
 
2,488

 
3.7
Content
14,802

 
(8,965
)
 
5,837

 
4.3
Trade names
63,855

 
(52,927
)
 
10,928

 
1.8
Total
$
136,974

 
$
(102,168
)
 
$
34,806

 
2.8

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

At September 30, 2017, amortization of intangible assets with definite lives for each of the next five years is estimated to be as follows:
Years Ending September 30,
(In thousands)
2018
$
68,567

2019
51,422

2020
47,775

2021
10,735

2022
10,650

Thereafter
10,621

Total
$
199,770

NOTE 5—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
Level 2: Other inputs, which are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See below for a discussion of fair value measurements made using Level 3 inputs.
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
 
September 30, 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
$
865,630

 
$

 
$

 
$
865,630

Time deposits

 
105,942

 

 
105,942

Treasury discount notes
1,199

 

 

 
1,199

Certificates of deposit

 
6,199

 

 
6,199

Total
$
866,829

 
$
112,141

 
$

 
$
978,970

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangement
$

 
$

 
$
(1,792
)
 
$
(1,792
)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
December 31, 2016
 
Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
667,662

 
$

 
$

 
$
667,662

Commercial paper

 
123,640

 

 
123,640

Time deposits

 
79,000

 

 
79,000

Treasury discount notes
24,991

 

 

 
24,991

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
49,797

 

 
49,797

Treasury discount notes
34,974

 

 

 
34,974

Corporate debt securities

 
4,571

 

 
4,571

Total
$
727,627

 
$
257,008

 
$

 
$
984,635

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(33,871
)
 
$
(33,871
)
The following tables present the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Contingent
Consideration
Arrangements
 
Three Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Balance at July 1
$
(24,829
)
 
$
(45,526
)
Total net (losses) gains:
 
 
 
Included in earnings:
 
 
 
Fair value adjustments
(60
)
 
2,477

Included in other comprehensive loss
(332
)
 
(333
)
Settlements
23,429

 
30

Balance at September 30
$
(1,792
)
 
$
(43,352
)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Nine Months Ended September 30,
 
2017
 
2016
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at January 1
$
(33,871
)
 
$
4,050

 
$
(33,873
)
Total net (losses) gains:
 
 
 
 
 
Included in earnings:
 
 
 
 
 
Fair value adjustments
(4,945
)
 

 
(7,993
)
Included in other comprehensive (loss) income
(1,405
)
 
5,950

 
(5,614
)
Fair value at date of acquisition

 

 
1,948

Settlements
38,429

 

 
2,180

Proceeds from sale

 
(10,000
)
 

Balance at September 30
$
(1,792
)
 
$

 
$
(43,352
)
Contingent Consideration Arrangements
As of September 30, 2017, there is one contingent consideration arrangement related to a business acquisition. The maximum contingent payment related to this arrangement is $3.0 million and the gross fair value of this arrangement, before the unamortized discount, at September 30, 2017 is $2.1 million.
The sole remaining contingent consideration arrangement is based upon earnings performance. Previous contingent consideration arrangements were based upon earnings performance and/or operating metrics. The Company determined the fair value of the contingent consideration arrangement by using probability-weighted analyses to determine the amounts of the gross liability, and, because the arrangement was 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 fair values of the contingent consideration arrangements at both September 30, 2017 and December 31, 2016 reflect discount rates of 12%.
The fair value of contingent consideration arrangements is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangements each reporting period, including the accretion of the discount, if applicable, and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at September 30, 2017 and December 31, 2016 includes a current portion of $0.6 million and $33.4 million, respectively, and a non-current portion of $1.2 million and $0.4 million, respectively, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.
Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity and cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Cost method investments
At September 30, 2017 and December 31, 2016, the carrying values of the Company's investments accounted for under the cost method totaled $116.2 million and $116.1 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. The Company evaluates each cost method investment for impairment on a quarterly basis and recognizes an impairment loss if a decline in value is determined to be other-than-temporary. If the Company has not

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

identified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost method investment, then the fair value of such cost method investment is not estimated, as it is impracticable to do so.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
 
September 30, 2017
 
December 31, 2016
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Current portion of long-term debt
$

 
$

 
$
(20,000
)
 
$
(20,311
)
Long-term debt, net of current portion
(1,649,267
)
 
(1,720,311
)
 
(1,582,484
)
 
(1,657,861
)
The fair value of long-term debt, including the current portion, is estimated using market prices or indices for similar liabilities and takes into consideration other factors such as credit quality and maturity, which are Level 3 inputs.
NOTE 6—LONG-TERM DEBT
Long-term debt consists of:
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Match Group Debt:
 
 
 
6.75% Senior Notes due December 15, 2022 (the "Match Group 6.75% Senior Notes"); interest payable each June 15 and December 15, which commenced June 15, 2016
$
445,172

 
$
445,172

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

 
400,000

Match Group Term Loan due November 16, 2022(a)
425,000

 
350,000

Total Match Group long-term debt
1,270,172

 
1,195,172

Less: Unamortized original issue discount and original issue premium, net
4,470

 
5,245

Less: Unamortized debt issuance costs
11,704

 
13,434

Total Match Group debt
1,253,998

 
1,176,493

 


 


IAC Debt:


 


4.875% Senior Notes due November 30, 2018 (the "4.875% Senior Notes"); interest payable each May 30 and November 30, which commenced May 30, 2014
361,874

 
390,214

4.75% Senior Notes due December 15, 2022 (the "4.75% Senior Notes"); interest payable each June 15 and December 15, which commenced June 15, 2013
34,859

 
38,109

Total IAC long-term debt
396,733

 
428,323

Less: Current portion of IAC long-term debt

 
20,000

Less: Unamortized debt issuance costs
1,464

 
2,332

Total IAC debt, net of current portion
395,269

 
405,991

 
 
 
 
Total long-term debt, net of current portion
$
1,649,267

 
$
1,582,484

________________________

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

(a) 
The Match Group Term Loan matures on November 16, 2022; provided that, if any of the Match Group 6.75% Senior Notes remain outstanding on the date that is 91 days prior to the maturity date of the Match Group 6.75% Senior Notes, the Match Group Term Loan maturity date shall be September 15, 2022, the date that is 91 days prior to the maturity date of the Match Group 6.75% Senior Notes.
Match Group Senior Notes
The Match Group 6.375% Senior Notes were issued on June 1, 2016. The proceeds of $400 million were used to prepay a portion of indebtedness outstanding under the Match Group Term Loan. At any time prior to June 1, 2019, these notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at redemption prices set forth in the indenture governing the notes, together with accrued and unpaid interest thereon to the applicable redemption date.
The Match Group 6.75% Senior Notes were issued on November 16, 2015, in exchange for a portion of the 4.75% Senior Notes (the "Match Exchange Offer"). At any time prior to December 15, 2017, the Match Group 6.75% Senior Notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at redemption prices set forth in the indenture governing the notes, together with accrued and unpaid interest thereon to the applicable redemption date.
The indentures governing the Match Group 6.375% and 6.75% Senior Notes contain covenants that would limit Match Group's ability to pay dividends or to make distributions and repurchase or redeem Match Group stock in the event a default has occurred or Match Group's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0. At September 30, 2017, there were no limitations pursuant thereto. There are additional covenants that limit Match Group's ability and the ability of its subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event Match Group is not in compliance with the leverage ratio set forth in the indenture, and (ii) incur liens, enter into agreements restricting Match Group subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of their assets.
Match Group Term Loan and Match Group Credit Facility
On November 16, 2015, under a credit agreement (the "Match Group Credit Agreement"), Match Group borrowed $800 million in the form of a term loan (the "Match Group Term Loan"). On March 31, 2016, Match Group made a $10 million principal payment on the Match Group Term Loan. On June 1, 2016, the $400 million in proceeds from the Match Group 6.375% Senior Notes, described above, were used to repay a portion of the Match Group Term Loan. On December 8, 2016, Match Group made an additional $40 million principal payment on the Match Group Term Loan and the remaining outstanding balance of $350 million, which was due at maturity, was repriced. On August 14, 2017, the Match Group Term Loan was increased by $75 million. In addition, the outstanding balance of $425 million was repriced at LIBOR plus 2.50%, and the LIBOR floor was reduced to 0.00%. The Match Group Term Loan provides for additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, if any, is governed by the secured net leverage ratio contained in the Match Group Credit Agreement. The interest rate on the Match Group Term Loan at September 30, 2017 is 3.81%. Interest payments are due at least quarterly 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 September 30, 2017 and December 31, 2016, there were no outstanding borrowings under the Match Group Credit Facility. The annual commitment fee on undrawn funds based on the current leverage ratio is 30 basis points. Borrowings under the Match Group Credit Facility bear interest, at Match Group's option, at a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on Match Group's consolidated net leverage ratio. The terms of the Match Group Credit Facility require Match Group to maintain a consolidated net leverage ratio of not more than 5.0 to 1.0 and a minimum interest coverage ratio of not less than 2.5 to 1.0 (in each case as defined in the agreement).
There are additional covenants under the Match Group Credit Facility and the Match Group Term Loan that limit the ability of Match Group and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. While the Match Group Term Loan remains outstanding, these same covenants under the Match Group Credit Agreement are more restrictive than the covenants that are applicable to the Match Group Credit Facility. Obligations under the Match Group Credit Facility and Match Group Term Loan are unconditionally guaranteed by certain Match Group wholly-owned domestic subsidiaries, and are also secured by the stock of certain Match Group domestic and foreign subsidiaries. The Match Group

21

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

Term Loan and outstanding borrowings, if any, under the Match Group Credit Facility rank equally with each other, and have priority over the Match Group 6.75% and 6.375% Senior Notes to the extent of the value of the assets securing the borrowings under the Match Group Credit Agreement.
IAC Senior Notes
The 4.875% and 4.75% Senior Notes were issued by IAC on November 15, 2013 and December 21, 2012, respectively. The 4.875% and 4.75% Senior Notes are unconditionally guaranteed by certain wholly-owned domestic subsidiaries, which are designated as guarantor subsidiaries; neither Match Group, ANGI Homeservices nor any of their subsidiaries guarantee any debt of IAC, or in the case of Match Group and its subsidiaries are subject to any of the covenants related to such debt. The guarantor subsidiaries are the same for the 4.875% and 4.75% Senior Notes. See "Note 13—Guarantor and Non-guarantor Financial Information" for financial information relating to guarantor and non-guarantor subsidiaries.
For the nine months ended September 30, 2017, the Company redeemed and repurchased $28.3 million of its 4.875% Senior Notes and repurchased $3.3 million of its 4.75% Senior Notes. For the nine months ended September 30, 2016, the Company redeemed and repurchased $109.8 million of its 4.875% Senior Notes and repurchased $16.5 million of its 4.75% Senior Notes.
On October 2, 2017, a subsidiary of the Company issued $517.5 million aggregate principal amount of 0.875% Exchangeable Senior Notes due October 1, 2022, which are guaranteed by the Company. The proceeds from these notes were, in part, loaned to IAC, which repaid the outstanding balance of the 4.875% Senior Notes of $361.9 million. See "Note 14—Subsequent Events" for further information.
IAC Credit Facility
IAC has a $300.0 million revolving credit facility (the "IAC Credit Facility") that expires October 7, 2020. At September 30, 2017 and December 31, 2016, there were no outstanding borrowings under the IAC Credit Facility. The annual commitment fee on undrawn funds is currently 35 basis points, and is based on the leverage ratio most recently reported. Borrowings under the IAC Credit Facility bear interest, at the Company's option, at a base rate or LIBOR, in each case, plus an applicable margin, which is determined by reference to a pricing grid based on the Company's leverage ratio. The terms of the IAC Credit Facility require that the Company maintains a leverage ratio (as defined in the agreement) of not more than 3.25 to 1.0 and restrict our ability to incur additional indebtedness. Borrowings under the IAC Credit Facility are unconditionally guaranteed by the same domestic subsidiaries that guarantee the 4.875% and 4.75% Senior Notes and are also secured by the stock of certain of our domestic and foreign subsidiaries. The 4.875% and 4.75% Senior Notes rank equally with each other, and are subordinate to outstanding borrowings under the IAC Credit Facility to extent of the value of the assets securing such borrowings.
NOTE 7—ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive loss into earnings:
 
Three Months Ended September 30, 2017
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance at July 1
$
(136,738
)
 
$

 
$
(136,738
)
Other comprehensive income before reclassifications
37,225

 

 
37,225

Amounts reclassified to earnings

 

 

Net current period other comprehensive income
37,225

 

 
37,225

Balance at September 30
$
(99,513
)
 
$

 
$
(99,513
)

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

 
Three Months Ended September 30, 2016
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance at July 1
$
(121,612
)
 
$
4,205

 
$
(117,407
)
Other comprehensive (loss) income before reclassifications, net of tax provision of $0.1 million related to unrealized losses on available-for-sale securities
(5,132
)
 
114

 
(5,018
)
Amounts reclassified to earnings

 
(259
)
(a) 
(259
)
Net current period other comprehensive loss
(5,132
)
 
(145
)
 
(5,277
)
Balance at September 30
$
(126,744
)
 
$
4,060

 
$
(122,684
)
___________________
(a) 
Amount is net of a tax provision of $0.2 million.
 
Nine Months Ended September 30, 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
69,951

 
7

 
69,958

Amounts reclassified to earnings
685

 
(4,033
)
(b) 
(3,348
)
Net current period other comprehensive income (loss)
70,636

 
(4,026
)
 
66,610

Balance as of September 30
$
(99,513
)
 
$

 
$
(99,513
)
___________________
(b) 
Amount includes a tax benefit of $3.8 million.
 
Nine Months Ended September 30, 2016
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance as of January 1
$
(154,645
)
 
$
2,542

 
$
(152,103
)
Other comprehensive (loss) income before reclassifications, net of tax benefit of $0.7 million related to unrealized losses on available-for-sale securities
(3,538
)
 
4,868

 
1,330

Amounts reclassified to earnings
9,850

 
(2,892
)
(c) 
6,958

Net current period other comprehensive income
6,312

 
1,976

 
8,288

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

 
(458
)
 
21,131

Balance as of September 30
$
(126,744
)
 
$
4,060

 
$
(122,684
)
___________________
(c) 
Amount is net of a tax provision of $0.2 million.

23

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

At September 30, 2017, there was no tax benefit or provision on the accumulated other comprehensive loss.
NOTE 8—EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to IAC shareholders:
 
Three Months Ended September 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings
$
225,639

 
$
225,639

 
$
52,340

 
$
52,340

Net earnings attributable to noncontrolling interests
(45,996
)
 
(45,996
)
 
(9,178
)
 
(9,178
)
Impact from public subsidiaries' dilutive securities(a)

 
(23,749
)
 

 
(3,473
)
Net earnings attributable to IAC shareholders
$
179,643

 
$
155,894

 
$
43,162

 
$
39,689

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
80,817

 
80,817

 
79,532

 
79,532

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

 
6,379

 

 
2,087

Denominator for earnings per share—weighted average shares(b)(c)(e)
80,817

 
87,196

 
79,532

 
81,619

 
 
 
 
 
 
 
 
Earnings per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share
$
2.22

 
$
1.79

 
$
0.54

 
$
0.49

 
Nine Months Ended September 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
334,659

 
$
334,659

 
$
(130,268
)
 
$
(130,268
)
Net earnings attributable to noncontrolling interests
(62,539
)
 
(62,539
)
 
(13,063
)
 
(13,063
)
Impact from public subsidiaries dilutive securities(a)

 
(34,104
)
 

 

Net earnings (loss) attributable to IAC shareholders
$
272,120

 
$
238,016

 
$
(143,331
)
 
$
(143,331
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
79,369

 
79,369

 
80,357

 
80,357

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

 
5,133

 

 

Denominator for earnings per share—weighted average shares(b)(c)(d)(e)
79,369

 
84,502

 
80,357

 
80,357

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings (loss) per share
$
3.43

 
$
2.82

 
$
(1.78
)
 
$
(1.78
)

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

________________________
(a) 
The amount for the three and nine months ended September 30, 2017 and for the three months ended September 30, 2016 reflects the reduction in Match Group's earnings attributable to IAC from the assumed exercise of Match Group dilutive securities under the if-converted method. For the nine months ended September 30, 2016, the impact on earnings related to Match Group's dilutive securities under the if-converted method is excluded because it would have been anti-dilutive due to the Company's net loss.
(b) 
Dilutive securities for the three and nine months ended September 30, 2017, includes the impact from the assumed exercise of ANGI Homeservices dilutive securities under the if-converted method, as it is more dilutive for IAC to settle certain ANGI Homeservices equity awards. The impact on earnings of ANGI Homeservices dilutive securities is not applicable for priors prior to the Combination.
(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 and subsidiary denominated equity and vesting of restricted stock units ("RSUs"). For the three months ended September 30, 2017, there were no potentially dilutive securities excluded from the calculation of diluted earnings per share. For the nine months ended September 30, 2017 and three months ended September 30, 2016, less than 0.1 million and 3.3 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
(d) 
For the nine months ended September 30, 2016, the Company had a loss from operations and, as a result, approximately 9.8 million potentially dilutive securities were excluded from computing diluted earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute the diluted earnings per share amount.
(e) 
Market-based awards and performance-based stock units (“PSUs”) are considered contingently issuable shares. Shares issuable upon exercise or vesting of market-based awards and PSUs are included in the denominator for earnings per share if (i) the applicable market or performance condition(s) has been met and (ii) the inclusion of the market-based awards and PSUs is dilutive for the respective reporting periods. For the three and nine months ended September 30, 2017 and three months ended September 30, 2016, 0.3 million shares underlying market-based awards and PSUs were excluded from the calculation of diluted earnings per share because the market or performance conditions had not been met.
NOTE 9—SEGMENT INFORMATION
The overall concept that IAC employs in determining its operating segments is to present the financial information in a manner consistent with: how the chief operating decision maker views the businesses; how the businesses are organized as to segment management; and the focus of the businesses with regards to the types of services or products offered or the target market. Operating segments are combined for reporting purposes if they meet certain aggregation criteria, which principally relate to the similarity of their economic characteristics or, in the case of the Other reportable segment, do not meet the quantitative thresholds that require presentation as separate reportable segments.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Match Group
$
343,418

 
$
287,530

 
$
951,754

 
$
823,240

ANGI Homeservices
181,717

 
133,560

 
513,173

 
375,222

Video
78,338

 
59,955

 
184,097

 
162,361

Applications
136,333

 
142,782

 
439,199

 
445,735

Publishing
88,755

 
74,902

 
244,959

 
326,195

Other(a)

 
65,515

 
23,980

 
196,323

Inter-segment eliminations
(127
)
 
(142
)
 
(508
)
 
(356