Document


As filed with the Securities and Exchange Commission on November 9, 2018


 
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, 2018
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=12541005&doc=15
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 every Interactive Data File required to be submitted 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 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
 
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 2, 2018, the following shares of the registrant's common stock were outstanding:
Common Stock
77,724,487

Class B Common Stock
5,789,499

Total outstanding Common Stock
83,513,986


The aggregate market value of the voting common stock held by non-affiliates of the registrant as of November 2, 2018 was $15,278,631,437. 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, 2018
 
December 31, 2017
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
1,670,984

 
$
1,630,809

Marketable securities
208,555

 
4,995

Accounts receivable, net of allowance of $19,835 and $11,489, respectively
347,158

 
304,027

Other current assets
246,197

 
185,374

Total current assets
2,472,894

 
2,125,205

 
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $283,129 and $271,811, respectively
308,465

 
315,170

Goodwill
2,572,221

 
2,559,066

Intangible assets, net of accumulated amortization of $129,842 and $74,957,
respectively
624,102

 
663,737

Long-term investments
217,615

 
64,977

Deferred income taxes
84,817

 
66,321

Other non-current assets
92,233

 
73,334

TOTAL ASSETS
$
6,372,347

 
$
5,867,810

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Current portion of long-term debt
$
13,750

 
$
13,750

Accounts payable, trade
76,193

 
76,571

Deferred revenue
381,397

 
342,483

Accrued expenses and other current liabilities
422,165

 
366,924

Total current liabilities
893,505

 
799,728

 
 
 
 
Long-term debt, net
1,983,993

 
1,979,469

Income taxes payable
25,241

 
25,624

Deferred income taxes
34,861

 
35,070

Other long-term liabilities
36,625

 
38,229

 
 
 
 
Redeemable noncontrolling interests
69,530

 
42,867

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000 shares; issued 262,040 and 260,624 shares, respectively, and outstanding 77,701 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
11,955,629

 
12,165,002

Retained earnings
1,067,042

 
595,038

Accumulated other comprehensive loss
(112,855
)
 
(103,568
)
Treasury stock 194,708 and 194,163 shares, respectively
(10,309,612
)
 
(10,226,721
)
Total IAC shareholders' equity
2,600,482

 
2,430,028

Noncontrolling interests
728,110

 
516,795

Total shareholders' equity
3,328,592

 
2,946,823

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
6,372,347

 
$
5,867,810

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,
 
2018
 
2017
 
2018
 
2017
 
(In thousands, except per share data)
Revenue
$
1,104,592

 
$
828,434

 
$
3,158,789

 
$
2,356,654

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
237,238

 
166,290

 
657,424

 
451,281

Selling and marketing expense
386,802

 
352,879

 
1,159,294

 
1,023,394

General and administrative expense
190,903

 
235,580

 
563,450

 
529,397

Product development expense
77,740

 
70,645

 
230,122

 
180,835

Depreciation
18,925

 
17,263

 
56,987

 
55,490

Amortization of intangibles
20,152

 
4,366

 
60,293

 
22,151

Total operating costs and expenses
931,760

 
847,023

 
2,727,570

 
2,262,548

Operating income (loss)
172,832

 
(18,589
)
 
431,219

 
94,106

Interest expense
(27,610
)
 
(25,036
)
 
(81,471
)
 
(74,556
)
Other income (expense), net
8,113

 
(10,216
)
 
174,635

 
(7,700
)
Earnings (loss) before income taxes
153,335

 
(53,841
)
 
524,383

 
11,850

Income tax benefit
18,242

 
279,480

 
15,887

 
322,809

Net earnings
171,577

 
225,639

 
540,270

 
334,659

Net earnings attributable to noncontrolling interests
(25,803
)
 
(45,996
)
 
(105,061
)
 
(62,539
)
Net earnings attributable to IAC shareholders
$
145,774

 
$
179,643

 
$
435,209

 
$
272,120

 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic earnings per share
$
1.75

 
$
2.22

 
$
5.22

 
$
3.43

Diluted earnings per share
$
1.49

 
$
1.79

 
$
4.55

 
$
2.82

 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
512

 
$
414

 
$
1,937

 
$
1,389

Selling and marketing expense
1,837

 
20,970

 
5,679

 
24,420

General and administrative expense
44,242

 
94,432

 
134,743

 
153,123

Product development expense
8,772

 
18,656

 
29,647

 
28,430

Total stock-based compensation expense
$
55,363

 
$
134,472

 
$
172,006

 
$
207,362

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,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Net earnings
$
171,577

 
$
225,639

 
$
540,270

 
$
334,659

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(1,050
)
 
44,126

 
(12,233
)
 
84,824

Change in unrealized gains and losses on available-for-sale securities (net of tax benefit of $4 for the three months ended September 30, 2018, and net of tax benefit of $3,846 for the nine months ended September 30, 2017)
(28
)
 

 
(15
)
 
(4,026
)
Total other comprehensive (loss) income
(1,078
)
 
44,126

 
(12,248
)
 
80,798

Comprehensive income, net of tax
170,499

 
269,765

 
528,022

 
415,457

Components of comprehensive income attributable to noncontrolling interests:
 
 
 
 
 
 
 
Net earnings attributable to noncontrolling interests
(25,803
)
 
(45,996
)
 
(105,061
)
 
(62,539
)
Change in foreign currency translation adjustment attributable to noncontrolling interests
549

 
(6,901
)
 
2,632

 
(14,188
)
Comprehensive income attributable to noncontrolling interests
(25,254
)
 
(52,897
)
 
(102,429
)
 
(76,727
)
Comprehensive income attributable to IAC shareholders
$
145,245

 
$
216,868

 
$
425,593

 
$
338,730



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, 2018
(Unaudited)
 
 
 
 
IAC Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Class B
Convertible
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Total IAC
Shareholders'
Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
 
Additional
Paid-in
Capital
 
Retained Earnings
 
Treasury
Stock
 
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
(In thousands)
 
 
Balance 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
34,481

 
 

 

 

 

 

 
435,209

 

 

 
435,209

 
70,580

 
505,789

Other comprehensive loss, net of tax
(710
)
 
 

 

 

 

 

 

 
(9,616
)
 

 
(9,616
)
 
(1,922
)
 
(11,538
)
Stock-based compensation expense
1,084

 
 

 

 

 

 
52,763

 

 

 

 
52,763

 
118,159

 
170,922

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

 
 
1

 
1,416

 

 

 
34,902

 

 

 

 
34,903

 

 
34,903

Purchase of treasury stock

 
 

 

 

 

 

 

 

 
(82,891
)
 
(82,891
)
 

 
(82,891
)
Purchase of noncontrolling interests
(3,562
)
 
 

 

 

 

 

 

 

 

 

 
(1,236
)
 
(1,236
)
Adjustment of redeemable noncontrolling interests to fair value
(372
)
 
 

 

 

 

 
372

 

 

 

 
372

 

 
372

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

 
 

 

 

 

 
(270,149
)
 

 
347

 

 
(269,802
)
 
1,689

 
(268,113
)
Issuance of ANGI Homeservices common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices

 
 

 

 

 

 
(29,530
)
 

 
(18
)
 

 
(29,548
)
 
6,006

 
(23,542
)
Noncontrolling interests created in acquisitions
2,261

 
 

 

 

 

 

 

 

 

 

 
14,246

 
14,246

Other
(6,519
)
 
 

 

 

 

 
2,269

 

 

 

 
2,269

 
383

 
2,652

Balance at September 30, 2018
$
69,530

 
 
$
262

 
262,040

 
$
16

 
16,157

 
$
11,955,629

 
$
1,067,042

 
$
(112,855
)
 
$
(10,309,612
)
 
$
2,600,482

 
$
728,110

 
$
3,328,592

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,
 
2018
 
2017
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings
$
540,270

 
$
334,659

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
172,006

 
207,362

Amortization of intangibles
60,293

 
22,151

Depreciation
56,987

 
55,490

Bad debt expense
35,521

 
20,935

Deferred income taxes
(36,866
)
 
(344,120
)
Unrealized gains on equity securities, net
(126,444
)
 

Gains from the sale of investments and businesses, net
(27,240
)
 
(24,031
)
Other adjustments, net
12,677

 
35,662

Changes in assets and liabilities, net of effects of acquisitions and dispositions:


 
 
Accounts receivable
(78,665
)
 
(78,612
)
Other assets
(48,935
)
 
(17,326
)
Accounts payable and other liabilities
57,891

 
36,407

Income taxes payable and receivable
1,971

 
4,433

Deferred revenue
52,234

 
44,791

Net cash provided by operating activities
671,700

 
297,801

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(17,635
)
 
(69,113
)
Capital expenditures
(60,113
)
 
(56,519
)
Proceeds from maturities and sales of marketable debt securities
125,000

 
114,350

Purchases of marketable debt securities
(326,906
)
 
(24,909
)
Purchases of investments
(32,180
)
 
(9,105
)
Net proceeds from the sale of investments and businesses
28,630

 
125,220

Other, net
9,646

 
1,319

Net cash (used in) provided by investing activities
(273,558
)
 
81,243

Cash flows from financing activities:
 
 
 
Repurchases of IAC debt
(363
)
 
(31,590
)
Proceeds from issuance of Match Group debt

 
75,000

Principal payments on ANGI Homeservices debt
(10,313
)
 

Purchase of IAC treasury stock
(82,891
)
 
(56,424
)
Purchase of Match Group treasury stock
(86,239
)
 

Proceeds from the exercise of IAC stock options
38,903

 
69,065

Proceeds from the exercise of Match Group and ANGI Homeservices stock options
2,876

 
57,705

Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
(3,011
)
 
(57,180
)
Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards
(208,962
)
 
(228,978
)
 Purchase of Match Group stock-based awards

 
(272,459
)
 Purchase of noncontrolling interests
(4,798
)
 
(13,011
)
Acquisition-related contingent consideration payments
(185
)
 
(27,289
)
Debt issuance costs

 
(2,637
)
Other, net
(4,873
)
 
(5,002
)
Net cash used in financing activities
(359,856
)
 
(492,800
)
Total cash provided (used)
38,286

 
(113,756
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(207
)
 
9,401

Net increase (decrease) in cash, cash equivalents, and restricted cash
38,079

 
(104,355
)
Cash, cash equivalents, and restricted cash at beginning of period
1,633,682

 
1,360,199

Cash, cash equivalents, and restricted cash at end of period
$
1,671,761

 
$
1,255,844


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 operates Vimeo, Dotdash, The Daily Beast and Investopedia, among many others, and also has majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish, and OkCupid, and ANGI Homeservices, which includes HomeAdvisor and Angie’s List.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
As of September 30, 2018, IAC’s economic and voting interest in:
Match Group were 80.9%, and 97.5%, respectively. All references to "Match Group" or "MTCH" in this report are to Match Group, Inc.
ANGI Homeservices were 86.3%, and 98.4%, respectively. All reference to "ANGI Homeservices" or "ANGI" in this report are to ANGI Homeservices Inc.
Basis of Consolidation and Accounting for Investments
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
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.
Investments in equity securities, other than those of our consolidated subsidiaries and those accounted for under 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, upon 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 the identical or a similar investment of the same issuer and 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 reviews impairment of our equity securities each reporting period when there are qualitative indicators that may indicate impairment. Once the qualitative indicators are identified and the fair value of the security is less than its carrying value, the Company will write down the security to its fair value and record the corresponding charge within other income (expense), net. See "Accounting Pronouncements adopted by the Company" below for further information.
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 included in the Company's Annual Report on Form 10-K for the year ended December 31, 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. Actual results could differ from these estimates.
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 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; unrecognized tax 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.
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").
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. Google’s previously announced policy changes related to its Chrome browser became effective on September 12, 2018 and negatively impacted the distribution of our desktop products through the Chrome Web Store.  The impact of these changes on revenue and profits in the third quarter of 2018 were modest as the Company optimized marketing spend in anticipation of the changes.  While these changes will reduce revenue and profits of these products in the future, the negative effect on overall Applications revenue and profits are expected to be partially offset by marketing optimization and growth at our Mobile businesses.  The estimated fair value of the Applications reporting unit exceeded its carrying value by approximately 5% and the fair value of the related intangible asset approximated its carrying value as of our most recent assessment. As of September 30, 2018, the goodwill balance of the Applications reporting unit and the carrying value of the related intangible asset are $460.1 million and $56.6 million, respectively.
For the three and nine months ended September 30, 2018, revenue earned from Google was $204.4 million and $620.7 million, representing 19% and 20%, respectively, of the Company's consolidated revenue. For the three and nine months ended September 30, 2017, revenue earned from Google was $176.8 million and $539.2 million, representing 21% and 23%, respectively, of the Company's consolidated revenue. This revenue is earned principally by the businesses comprising the Applications and Publishing segments. For the three and nine months ended September 30, 2018, revenue earned from Google represents 72% and 76%, respectively, of Applications revenue and 67% and 71%, respectively, of Publishing revenue. 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. Accounts receivable related to revenue earned from Google totaled $73.1 million and $72.4 million at September 30, 2018 and December 31, 2017, respectively.
Recent Accounting Pronouncements
Accounting Pronouncements adopted by the Company
ASU No. 2014-09, Revenue from Contracts with Customers

9

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

In May 2014, the FASB issued ASU No. 2014-09, which superseded nearly all previous revenue recognition guidance. The Company adopted ASU No. 2014-09 effective January 1, 2018 using the modified retrospective transition method for open contracts as of the date 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 interest in ANGI; the adjustment to retained earnings was principally related to the Company’s ANGI Homeservices and Applications segments.
Within 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.
The adoption of ASU No. 2014-09 will not have a material effect on the Company’s results of operations or cash flows for the year ending December 31, 2018. See "Note 2—Revenue Recognition" for additional information on the impact to the Company.
The Company's disaggregated revenue disclosures are presented in "Note 9—Segment Information."
The following tables present the impact of the adoption of ASU No. 2014-09 by segment under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, as reported, and ASC 605, Revenue Recognition, for the three and nine months ended September 30, 2018.
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
(In thousands)
Revenue by segment:
 
 
 
 
 
 
 
 
 
 
 
Match Group
$
443,943

 
$
443,943

 
$

 
$
1,272,506

 
$
1,272,506

 
$

ANGI Homeservices
303,116

 
303,116

 

 
853,249

 
853,249

 

Video
64,193

 
64,440

 
(247
)
 
193,112

 
194,049

 
(937
)
Applications
153,973

 
153,863

 
110

 
429,034

 
429,118

 
(84
)
Publishing
139,439

 
139,439

 

 
411,116

 
411,116

 

Inter-segment eliminations
(72
)
 
(72
)
 

 
(228
)
 
(228
)
 

Total
$
1,104,592

 
$
1,104,729

 
$
(137
)
 
$
3,158,789

 
$
3,159,810

 
$
(1,021
)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
(In thousands)
Operating costs and expenses by segment:
Match Group
$
304,048

 
$
304,048

 
$

 
$
870,213

 
$
870,213

 
$

ANGI Homeservices
269,601

 
269,352

 
249

 
807,228

 
815,190

 
(7,962
)
Video
74,443

 
74,756

 
(313
)
 
234,219

 
234,941

 
(722
)
Applications
120,932

 
119,962

 
970

 
337,455

 
335,184

 
2,271

Publishing
122,041

 
122,041

 

 
365,100

 
365,100

 

Corporate
40,695

 
40,695

 

 
113,355

 
113,355

 

Total
$
931,760

 
$
930,854

 
$
906

 
$
2,727,570

 
$
2,733,983

 
$
(6,413
)
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
(In thousands)
Operating income (loss) by segment:
Match Group
$
139,895

 
$
139,895

 
$

 
$
402,293

 
$
402,293

 
$

ANGI Homeservices
33,515

 
33,764

 
(249
)
 
46,021

 
38,059

 
7,962

Video
(10,250
)
 
(10,316
)
 
66

 
(41,107
)
 
(40,892
)
 
(215
)
Applications
33,041

 
33,901

 
(860
)
 
91,579

 
93,934

 
(2,355
)
Publishing
17,398

 
17,398

 

 
46,016

 
46,016

 

Corporate
(40,767
)
 
(40,767
)
 

 
(113,583
)
 
(113,583
)
 

Total
$
172,832

 
$
173,875

 
$
(1,043
)
 
$
431,219

 
$
425,827

 
$
5,392

 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
Under ASC 606
(as reported)
 
Under ASC 605
 
Effect of adoption of ASU No. 2014-09
 
(In thousands)
Net earnings
$
171,577

 
$
172,235

 
$
(658
)
 
$
540,270

 
$
536,119

 
$
4,151

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 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 three months ended September 30, 2018, other income, net includes an unrealized loss related to an equity security of $0.1 million. For the nine months ended September 30, 2018, other income, net includes net unrealized gains related to certain equity securities that were adjusted to fair

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

value in the second quarter of 2018 in accordance with ASU No. 2016-01 of $126.4 million. See "Note 5—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:
 
September 30, 2018
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Cash and cash equivalents
$
1,670,984

 
$
1,630,809

 
$
1,255,317

 
$
1,329,187

Restricted cash included in other current assets
344

 
2,873

 
527

 
20,464

Restricted cash included in other assets
433

 

 

 
10,548

Total cash, cash equivalents and restricted cash as shown on the consolidated statement of cash flows
$
1,671,761

 
$
1,633,682

 
$
1,255,844

 
$
1,360,199

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.
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 Pronouncement not yet adopted by the Company
ASU No. 2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, which supersedes existing guidance on accounting for leases 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. The Company will adopt the new lease guidance effective January 1, 2019. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides the option of an additional transition method that allows entities to initially apply the new lease guidance at the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company expects to implement the transition method option provided by ASU No. 2018-11.
The Company 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. 2016-02. Accordingly, the Company does not expect the amount or classification of rent expense in its statement of operations to be affected by the adoption of ASU No. 2016-02. The primary effect of the adoption of ASU No. 2016-02 will be the recognition of a right of use asset and related liability to reflect the Company's rights and obligations under its operating leases. The Company will also be required to provide the additional disclosures stipulated in ASU No. 2016-02.
The adoption of ASU No. 2016-02 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 because, in each circumstance, the leverage calculations are not affected by the 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 new standard.
Development of our selected software solution is ongoing, as it is not yet fully compliant with the requirements of ASU No. 2016-02. The timely readiness of the software solution is critical to ensure an efficient and effective adoption of ASU No. 2016-02. The Company's ability to calculate an estimate of the right of use asset and related liability is dependent upon the readiness of the software solution.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—REVENUE RECOGNITION
General Revenue Recognition
The Company accounts for a contract when it has approval and commitment from all parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when 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 exchange for those services or goods.
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. Subscribers pay in advance, primarily by 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. Revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription period, which primarily range from one to six months. Revenue is also earned from online advertising, the purchase of à la carte features and offline events. Online advertising revenue is recognized when an advertisement is displayed. Revenue from the purchase of à la carte features is recognized based on usage. Revenue associated with offline events is recognized when each event occurs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

ANGI Homeservices
ANGI revenue is primarily derived from (i) consumer connection revenue, which comprises fees paid by service professionals for consumer matches (regardless of whether the professional ultimately provides the requested service), and (ii) membership subscription fees paid by service professionals. Consumer connection revenue varies based upon several factors, including the service requested, type of match and geographic location of service. The Company’s consumer connection revenue is generated and recognized when an in-network service professional is delivered a consumer match. Membership subscription revenue from service professionals is initially 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.
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 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 subscription period, which is typically one year.
Video
Revenue of businesses in this segment is generated primarily through subscriptions, media production and distribution, and advertising. Subscription fee revenue is recognized over the terms of the applicable subscription period, which are one month or one year, production revenue is recognized when control is transferred to the customer to broadcast or exhibit, and advertising revenue is recognized when an advertisement is displayed or over the advertising period.
Applications
Applications 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 Applications businesses are supplied to us by Google pursuant to our services agreement with Google.
Pursuant to this agreement, those of our Applications 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 Applications 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. The 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-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.
To a lesser extent, Applications revenue also consists of fees related to subscription downloadable desktop and mobile applications as well as display advertisements. Fees related to subscription downloadable desktop and paid mobile applications are generally recognized at the time of the sale when the software license is delivered. To the extent updates or maintenance is required or expected, revenue is 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.
Publishing
Publishing revenue 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). The majority of the paid listings that our Publishing businesses display are supplied to us by Google in the manner, and pursuant to the services agreement with Google, described above under "Applications."

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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.
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 receivables 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 payments 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 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 generally classifies deferred revenue as current when the term of the applicable subscription period or expected completion of our performance obligation is one year or less. The deferred revenue balance as of January 1, 2018 is $332.2 million. During the nine months ended September 30, 2018, the Company recognized $317.2 million of revenue that was included in the deferred revenue balance as of January 1, 2018. The deferred revenue balance as of June 30, 2018 is $377.2 million. During the three months ended September 30, 2018, the Company recognized $220.4 million of revenue that was included in the deferred revenue balance as of July 1, 2018. The current and non-current deferred revenue balances at September 30, 2018 are $381.4 million and $1.8 million, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the accompanying consolidated balance sheet.
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 Applications 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 obtaining 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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

During the three and nine months ended September 30, 2018, the Company recognized expense of $94.4 million and $254.3 million, respectively, related to the amortization of these costs. The current and non-current contract asset balances at September 30, 2018 are $69.9 million and $5.6 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.
NOTE 3—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 unrecognized tax benefits is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the three and nine months ended September 30, 2018, the Company recorded an income tax benefit, despite pre-tax income, of $18.2 million and $15.9 million, due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards, a reduction in the Transition Tax described below, and research credits. For the three and nine months ended September 30, 2017, the Company recorded an income tax benefit, despite pre-tax income, of $279.5 million and $322.8 million, respectively, due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards.
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 the Transition Tax was due primarily to the utilization of additional 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 Internal Revenue Service ("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 FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which was issued 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.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Accruals for interest and penalties are not material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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 IRS is currently auditing the Company’s federal income tax returns for the years ended December 31, 2010 through 2016. The statute of limitations for the years 2010 through 2012 has been extended to December 31, 2019, and the statute of limitations for the years 2013 and 2014 has been extended to March 31, 2019. Various other jurisdictions are open to examination for tax years beginning with 2009. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. We 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 adjustments. 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 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.
At September 30, 2018 and December 31, 2017, unrecognized tax benefits, including interest and penalties, are $43.7 million and $39.7 million, respectively. If unrecognized tax benefits at September 30, 2018 are subsequently recognized, $40.6 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2017 was $37.2 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $14.6 million by September 30, 2019, due to expirations of statutes of limitations; $14.3 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, 2018, the Company has a gross deferred tax asset of $149.0 million that the Company expects to fully utilize on a more likely than not basis.
NOTE 4—BUSINESS COMBINATION
On September 29, 2017, the Company completed the combination of the businesses in the Company's HomeAdvisor segment and Angie's List under a new publicly traded company called ANGI Homeservices (the "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 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 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 $12.0 million related to the Combination.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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

 
$
2,571,613

Net earnings attributable to IAC shareholders
 
$
244,400

 
$
313,054

Basic earnings per share attributable to IAC shareholders
 
$
3.02

 
$
3.94

Diluted earnings per share attributable to IAC shareholders
 
$
2.80

 
$
3.70

NOTE 5—FINANCIAL INSTRUMENTS
Marketable Securities
At September 30, 2018 and December 31, 2017, the fair value of marketable securities are as follows:
 
September 30, 2018
 
December 31, 2017
 
(In thousands)
Available-for-sale marketable debt securities
$
208,005

 
$
4,995

Marketable equity security
550

 

     Total marketable securities
$
208,555

 
$
4,995

At September 30, 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
$
171,974

 
$

 
$
(10
)
 
$
171,964

Commercial paper
36,041

 

 

 
36,041

     Total available-for-sale marketable debt securities
$
208,015

 
$

 
$
(10
)
 
$
208,005

The contractual maturities of debt securities classified as current available-for-sale at September 30, 2018 are within one year. There are no investments in available-for-sale marketable debt securities that have been in a continuous unrealized loss position for longer than twelve months as of September 30, 2018.
At December 31, 2017, current available-for-sale marketable debt securities are as follows:
 
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 available-for-sale marketable debt securities:

18

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable debt securities
$
115,000

 
$
15,000

 
$
125,000

 
$
114,350

The specific-identification method is used to determine the cost of available-for-sale marketable debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. There were no gross realized gains or losses from the maturities and sales of available-for-sale marketable debt securities for the three and nine months ended September 30, 2018 and 2017.
Equity securities without readily determinable fair values
At September 30, 2018 and December 31, 2017, the carrying values of the Company's investments in equity securities without readily determinable fair values totaled $216.4 million and $63.4 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. Following the adoption of the measurement alternative under ASU No. 2016-01 on January 1, 2018, the Company's equity securities 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 the identical or a similar investment of the same issuer. All gains and losses on equity securities without readily determinable fair values, realized and unrealized, are recognized in "other income (expense), net" in the accompanying consolidated statement of operations.
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 September 30, 2018. The gross unrealized gains 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 2018.
 
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
 
 
(In thousands)
Upward adjustments (gross unrealized gains)
 
$

 
$
128,786

Downward adjustments (including impairment) (gross unrealized losses)
 

 
(2,588
)
Total
 
$

 
$
126,198

Realized and unrealized gains and losses for the Company's marketable equity security and investments without a readily determinable fair value for the three and nine months ended September 30, 2018 are as follows:
 
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
 
 
(In thousands)
Realized gains, net, for equity securities sold
 
$
702

 
$
27,874

Unrealized (losses) gains, net, on equity securities held
 
(115
)
 
126,444

Total gains recognized, net, in other income, net
 
$
587

 
$
154,318

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:

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

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 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, 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
$
745,046

 
$

 
$

 
$
745,046

Treasury discount notes

 
194,843

 

 
194,843

Commercial paper

 
157,808

 

 
157,808

Time deposits

 
105,034

 

 
105,034

Marketable securities:
 
 
 
 
 
 
 
Treasury discount notes

 
171,964

 

 
171,964

Commercial paper

 
36,041

 

 
36,041

Marketable equity security
550

 

 

 
550

Total
$
745,596

 
$
665,690

 
$

 
$
1,411,286

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(1,980
)
 
$
(1,980
)

20

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

 
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

Treasury discount notes

 
100,457

 

 
100,457

Commercial paper

 
215,325

 

 
215,325

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 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.
 
Contingent Consideration Arrangements
 
Three Months Ended September 30,
 
2018
 
2017
 
(In thousands)
Balance at July 1
$
(1,910
)
 
$
(24,829
)
Total net losses:
 
 
 
Included in earnings:
 
 
 
Fair value adjustments
(55
)
 
(60
)
Included in other comprehensive loss
(15
)
 
(332
)
Settlements

 
23,429

Balance at September 30
$
(1,980
)
 
$
(1,792
)

21

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

 
Contingent Consideration Arrangements
 
Nine Months Ended September 30,
 
2018
 
2017
 
(In thousands)
Balance at January 1
$
(2,647
)
 
$
(33,871
)
Total net losses:
 
 
 
Included in earnings:
 
 
 
Fair value adjustments
(265
)
 
(4,945
)
Included in other comprehensive loss
(16
)
 
(1,405
)
Settlements
948

 
38,429

Balance at September 30
$
(1,980
)
 
$
(1,792
)
Contingent Consideration Arrangements
As of September 30, 2018, there are three contingent consideration arrangements related to business acquisitions. Two of the contingent consideration arrangements have limits as to the maximum amount that can be paid. The maximum contingent payments related to these arrangements is $32.0 million and the gross fair value of these arrangements, before the unamortized discount, at September 30, 2018 is $2.0 million. No payment is expected for the one contingent consideration arrangement which does not have a limit on the maximum earnout.
The contingent consideration arrangements are 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, because the arrangements 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 fair values of the contingent consideration arrangements at both September 30, 2018 and December 31, 2017 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, 2018 and December 31, 2017 includes a current portion of $2.0 million and $0.6 million, respectively, and non-current portion of $2.0 million at December 31, 2017, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet. At September 30, 2018, there is no non-current portion of the contingent consideration arrangement liability.
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 method investments, are adjusted to fair value only when an impairment charge 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 charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
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:

22

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

 
September 30, 2018
 
December 31, 2017
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Current portion of long-term debt
$
(13,750
)
 
$
(13,664
)
 
$
(13,750
)
 
$
(13,802
)
Long-term debt, net(a)
(1,983,993
)
 
(2,353,160
)
 
(1,979,469
)
 
(2,168,108
)
_________________
(a) 
At September 30, 2018 and December 31, 2017, the carrying value of long-term debt, net includes unamortized original issue discount and debt issuance costs of $93.9 million and $109.1 million, respectively.
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.

23

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

NOTE 6—LONG-TERM DEBT
Long-term debt consists of:
 
September 30, 2018
 
December 31, 2017
 
(In thousands)
MTCH Debt:
 
 
 
MTCH Term Loan due November 16, 2022
$
425,000

 
$
425,000

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
1,275,000

 
1,275,000

Less: unamortized original issue discount
7,681

 
8,668

Less: unamortized debt issuance costs
12,231

 
13,636

Total MTCH debt, net
1,255,088

 
1,252,696

 
 
 
 
ANGI Debt:
 
 
 
ANGI Term Loan due November 1, 2022
264,688

 
275,000

Less: current portion of ANGI Term Loan
13,750

 
13,750

Less: unamortized debt issuance costs
2,483

 
2,938

Total ANGI debt, net
248,455

 
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
57,356

 
67,158

Less: unamortized debt issuance costs
14,183

 
16,740

Total IAC debt, net
480,450

 
468,461

 
 
 
 
Total long-term debt, net
$
1,983,993

 
$
1,979,469

MTCH Senior Notes
The 6.375% 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 MTCH 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 set forth in the indenture governing the notes. 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.
On December 4, 2017, MTCH issued $450 million aggregate principal amount of its 5.00% Senior Notes. The proceeds 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 due on December 15, 2022, and pay the related call premium. At any time prior to December 15, 2022, the 5.00% MTCH Senior Notes may be redeemed at a redemption price equal to the sum of the principal amount thereof,

24

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

plus accrued and unpaid interest and a make-whole premium set forth in the indenture governing the notes. 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 6.375% and 5.00% MTCH Senior Notes (i) contain covenants that would limit MTCH's ability to pay dividends or to make distributions and repurchase or redeem MTCH stock in the event a default has occurred or MTCH's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0 and (ii) are ranked equally with each other. At September 30, 2018, there were no limitations pursuant thereto. There are additional covenants that limit MTCH's ability and the ability of its subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event MTCH is not in compliance with certain ratios set forth in the indentures, and (ii) incur liens, enter into agreements restricting MTCH subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of their assets.
MTCH Term Loan and MTCH Credit Facility
At both September 30, 2018 and December 31, 2017, the outstanding balance on the MTCH Term Loan was $425 million. The MTCH Term Loan bears interest at LIBOR plus 2.50% and was 4.67% and 3.85% at September 30, 2018 and December 31, 2017, respectively. The MTCH Term Loan provides for 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.
As of September 30, 2018, MTCH has a $500 million revolving credit facility (the "MTCH Credit Facility") that expires on October 7, 2020. At September 30, 2018 and December 31, 2017, there were no outstanding borrowings under the MTCH Credit Facility. The annual commitment fee on undrawn funds based on the current leverage ratio is 25 basis points. Borrowings under the MTCH Credit Facility bear interest, at MTCH'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 MTCH's consolidated net leverage ratio. The terms of the MTCH Credit Facility require MTCH 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 MTCH Credit Facility and the MTCH Term Loan that limit the ability of MTCH and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. While the MTCH Term Loan remains outstanding, these same covenants under its credit agreement are generally more restrictive than the covenants that are applicable to the MTCH Credit Facility. Obligations under the MTCH Credit Facility and MTCH Term Loan are unconditionally guaranteed by certain MTCH wholly-owned domestic subsidiaries, and are also secured by the stock of certain MTCH domestic and foreign subsidiaries. The MTCH Term Loan and outstanding borrowings, if any, under the MTCH Credit Facility rank equally with each other, and have priority over the 6.375% and 5.00% MTCH Senior Notes to the extent of the value of the assets securing the borrowings under the MTCH credit agreement.
ANGI Term Loan:
At September 30, 2018 and December 31, 2017, the outstanding balance on the ANGI Term Loan was $264.7 million and $275.0 million, respectively. The ANGI Term Loan bears interest at LIBOR plus 1.75%, or 4.10% at September 30, 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. 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, 2.5% in the fourth year and 3.75% in the fifth year are required.
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 2.5 to 1.0 (in each case as defined in the credit agreement). 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. The ANGI Term Loan is guaranteed by ANGI's wholly-owned material domestic subsidiaries and is secured by substantially all assets of ANGI and the guarantors, subject to certain exceptions.

25

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

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.
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%.
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 $219.5 million based on the Company's stock price on September 30, 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.
For the three and nine months ended September 30, 2018, the Company incurred interest expense of $5.3 million and $15.8 million, which includes amortization of original issue discount of $3.3 million and $9.8 million, and debt issuance costs of $0.9 million and $2.6 million, respectively. As of September 30, 2018, the unamortized discount is $57.4 million resulting in a net carrying value of the liability component of $460.1 million.
IAC Senior Notes
The 4.75% Senior Notes were issued by IAC on December 21, 2012. These Notes are unconditionally guaranteed by certain of our wholly-owned domestic subsidiaries, which are designated as guarantor subsidiaries. See "Note 12—Guarantor and Non-Guarantor Financial Information" for financial information relating to guarantor and non-guarantor subsidiaries. The 4.75% Senior 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.

26

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

IAC Credit Facility
As of September 30, 2018, IAC has a $300 million revolving credit facility (the "IAC Credit Facility") that expires October 7, 2020. At September 30, 2018 and December 31, 2017, there were no outstanding borrowings under the IAC Credit Facility. The annual commitment fee on undrawn funds is 25 basis points, and is based on the leverage ratio (as defined in the agreement) 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 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 substantially the same domestic subsidiaries that guarantee the 4.75% Senior Notes and are also secured by the stock of certain of our domestic and foreign subsidiaries, which includes MTCH and ANGI. The 4.75% Senior Notes are subordinate to the outstanding borrowings under the IAC Credit Facility to the 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, 2018
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of July 1
$
(112,730
)
 
$
13

 
$
(112,717
)
Other comprehensive loss
(111
)
 
(27
)
 
(138
)
Balance as of September 30
$
(112,841
)
 
$
(14
)
 
$
(112,855
)
 
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 as of July 1
$
(136,738
)
 
$

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

 

 
37,225

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

 
$
(99,513
)
 
Nine Months Ended September 30, 2018
 
Foreign Currency Translation Adjustment
 
Unrealized Losses On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of January 1
$
(103,568
)
 
$

 
$
(103,568
)
Other comprehensive loss before reclassifications
(9,221
)
 
(14
)
 
(9,235
)
Amounts reclassified to earnings
(52
)
 

 
(52
)
Net current period other comprehensive loss
(9,273
)
 
(14
)
 
(9,287
)
Balance as of September 30
$
(112,841
)
 
$
(14
)
 
$
(112,855
)

27

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

 
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 as of 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
)
 
(3,348
)
Net current period other comprehensive income (loss)
70,636

 
(4,026
)
 
66,610

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

 
$
(99,513
)
The amounts reclassified out of foreign currency translation adjustment into earnings for both the nine months ended September 30, 2018 and 2017 relate to the liquidation of international subsidiaries. The amount reclassified out of unrealized gains on available-for-sale securities into earnings for the nine months ended September 30, 2017 includes a tax benefit of $3.8 million.
NOTE 8—EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share attributable to IAC shareholders:
 
Three Months Ended September 30,
 
2018
 
2017
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings
$
171,577

 
$
171,577

 
$
225,639

 
$
225,639

Net earnings attributable to noncontrolling interests
(25,803
)
 
(25,803
)
 
(45,996
)
 
(45,996
)
Impact from public subsidiaries' dilutive securities (a)

 
(8,336
)
 

 
(23,749
)
Net earnings attributable to IAC shareholders
$
145,774

 
$
137,438

 
$
179,643

 
$
155,894

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
83,433

 
83,433

 
80,817

 
80,817

Dilutive securities (a) (b) (c) (d)

 
8,542

 

 
6,379

Denominator for earnings per share—weighted average shares(a) (b) (c) (d)
83,433

 
91,975

 
80,817

 
87,196

 
 
 
 
 
 
 
 
Earnings per share attributable to IAC shareholders:
Earnings per share
$
1.75

 
$
1.49

 
$
2.22

 
$
1.79


28

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

 
Nine Months Ended September 30,
 
2018
 
2017
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings
$
540,270

 
$
540,270

 
$
334,659

 
$
334,659

Net earnings attributable to noncontrolling interests
(105,061
)
 
(105,061
)
 
(62,539
)
 
(62,539
)
Impact from public subsidiaries' dilutive securities (a)

 
(19,490
)
 

 
(34,104
)