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Table of Contents
As filed with the Securities and Exchange Commission on May 9, 2019


 
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 March 31, 2019
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=12893743&doc=14
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock, par value $0.001
 
IAC
 
The Nasdaq Stock Market LLC
As of May 3, 2019, the following shares of the registrant's common stock were outstanding:
Common Stock
78,308,663

Class B Common Stock
5,789,499

Total outstanding Common Stock
84,098,162


The aggregate market value of the voting common stock held by non-affiliates of the registrant as of May 3, 2019 was $17,697,229,465. 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 AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
March 31, 2019
 
December 31, 2018
 
(In thousands, except par value amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
2,217,337

 
$
2,131,632

Marketable securities
40,401

 
123,665

Accounts receivable, net of allowance and reserves of $19,913 and $18,860, respectively
345,686

 
279,189

Other current assets
226,474

 
228,253

Total current assets
2,829,898

 
2,762,739

 
 
 
 
Right of use assets
172,558

 

Property and equipment, net of accumulated depreciation and amortization of $295,917 and $286,798, respectively
325,888

 
318,800

Goodwill
2,745,788

 
2,726,859

Intangible assets, net of accumulated amortization of $155,945 and $136,405, respectively
608,109

 
631,422

Long-term investments
234,596

 
235,055

Deferred income taxes
129,304

 
64,786

Other non-current assets
113,761

 
134,924

TOTAL ASSETS
$
7,159,902

 
$
6,874,585

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

 
$
13,750

Accounts payable, trade
83,535

 
74,907

Deferred revenue
386,943

 
360,015

Accrued expenses and other current liabilities
423,592

 
434,886

Total current liabilities
907,820

 
883,558

 
 
 
 
Long-term debt, net
2,332,234

 
2,245,548

Income taxes payable
36,176

 
37,584

Deferred income taxes
22,903

 
23,600

Other long-term liabilities
217,519

 
66,807

 
 
 
 
Redeemable noncontrolling interests
71,914

 
65,687

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000 shares; issued 262,629 and 262,303 shares, respectively, and outstanding 78,289 and 77,963 shares, respectively
263

 
262

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
11,868,424

 
12,022,387

Retained earnings
1,347,489

 
1,258,794

Accumulated other comprehensive loss
(126,719
)
 
(128,722
)
Treasury stock 194,708 shares, respectively
(10,309,612
)
 
(10,309,612
)
Total IAC shareholders' equity
2,779,861

 
2,843,125

Noncontrolling interests
791,475

 
708,676

Total shareholders' equity
3,571,336

 
3,551,801

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
7,159,902

 
$
6,874,585


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

3

Table of Contents


IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands, except per share data)
Revenue
$
1,105,843

 
$
995,075

Operating costs and expenses:
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
260,071

 
201,962

Selling and marketing expense
421,860

 
402,832

General and administrative expense
213,616

 
184,184

Product development expense
88,700

 
76,937

Depreciation
18,971

 
19,257

Amortization of intangibles
22,752

 
19,953

Total operating costs and expenses
1,025,970

 
905,125

Operating income
79,873

 
89,950

Interest expense
(31,143
)
 
(26,505
)
Other income (expense), net
651

 
(4,619
)
Earnings before income taxes
49,381

 
58,826

Income tax benefit
63,604

 
29,013

Net earnings
112,985

 
87,839

Net earnings attributable to noncontrolling interests
(24,290
)
 
(16,757
)
Net earnings attributable to IAC shareholders
$
88,695

 
$
71,082

 
 
 
 
Per share information attributable to IAC shareholders:
 
 
Basic earnings per share
$
1.06

 
$
0.86

Diluted earnings per share
$
0.91

 
$
0.71

 
 
 
 
Stock-based compensation expense by function:
 
 
 
Cost of revenue
$
1,289

 
$
710

Selling and marketing expense
2,717

 
1,765

General and administrative expense
45,010

 
45,626

Product development expense
18,428

 
10,981

Total stock-based compensation expense
$
67,444

 
$
59,082

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

4

Table of Contents


IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands)
Net earnings
$
112,985

 
$
87,839

Other comprehensive income, net of tax:
 
 
 
Change in foreign currency translation adjustment
1,309

 
35,393

Change in unrealized gains and losses of available-for-sale debt securities
1

 

Total other comprehensive income
1,310

 
35,393

Comprehensive income, net of tax
114,295

 
123,232

Components of comprehensive income attributable to noncontrolling interests:
 
 
 
Net earnings attributable to noncontrolling interests
(24,290
)
 
(16,757
)
Change in foreign currency translation adjustment attributable to noncontrolling interests
(316
)
 
(7,036
)
Change in unrealized gains and losses of available-for-sale debt securities attributable to noncontrolling interests
1

 

Comprehensive income attributable to noncontrolling interests
(24,605
)
 
(23,793
)
Comprehensive income attributable to IAC shareholders
$
89,690

 
$
99,439




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

5

Table of Contents


IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2019 and 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, 2018
$
65,687

 
 
$
262

 
262,303

 
$
16

 
16,157

 
$
12,022,387

 
$
1,258,794

 
$
(128,722
)
 
$
(10,309,612
)
 
$
2,843,125

 
$
708,676

 
$
3,551,801

Net (loss) earnings
(1,051
)
 
 

 

 

 

 

 
88,695

 

 

 
88,695

 
25,341

 
114,036

Other comprehensive loss, net of tax
186

 
 

 

 

 

 

 

 
995

 

 
995

 
129

 
1,124

Stock-based compensation expense
42

 
 

 

 

 

 
20,165

 

 

 

 
20,165

 
47,237

 
67,402

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

 
 
1

 
326

 

 

 
(4,911
)
 

 

 

 
(4,910
)
 

 
(4,910
)
Purchase of noncontrolling interests
(3,182
)
 
 

 

 

 

 

 

 

 

 

 

 

Adjustment of redeemable noncontrolling interests to fair value
10,242

 
 

 

 

 

 
(10,242
)
 

 

 

 
(10,242
)
 

 
(10,242
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group

 
 

 

 

 

 
(133,861
)
 

 
1,001

 

 
(132,860
)
 
984

 
(131,876
)
Issuance of ANGI Homeservices common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices

 
 

 

 

 

 
(25,097
)
 

 
7

 

 
(25,090
)
 
9,108

 
(15,982
)
Other
(10
)
 
 

 

 

 

 
(17
)
 

 

 

 
(17
)
 

 
(17
)
Balance at March 31, 2019
$
71,914

 
 
$
263

 
262,629

 
$
16

 
16,157

 
$
11,868,424

 
$
1,347,489

 
$
(126,719
)
 
$
(10,309,612
)
 
$
2,779,861

 
$
791,475

 
$
3,571,336

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 (loss) earnings
(959
)
 
 

 

 

 

 

 
71,082

 

 

 
71,082

 
17,716

 
88,798

Other comprehensive income, net of tax
579

 
 

 

 

 

 

 

 
28,357

 

 
28,357

 
6,457

 
34,814

Stock-based compensation expense
410

 
 

 

 

 

 
17,214

 

 

 

 
17,214

 
41,458

 
58,672

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

 
 

 
772

 

 

 
25,275

 

 

 

 
25,275

 

 
25,275

Purchase of noncontrolling interests

 
 

 

 

 

 

 

 

 

 

 
(269
)
 
(269
)
Adjustment of redeemable noncontrolling interests to fair value
3,403

 
 

 

 

 

 
(3,403
)
 

 

 

 
(3,403
)
 

 
(3,403
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group

 
 

 

 

 

 
(111,721
)
 

 
264

 

 
(111,457
)
 
1,414

 
(110,043
)
Issuance of ANGI Homeservices common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices

 
 

 

 

 

 
(1,938
)
 

 
(3
)
 

 
(1,941
)
 
798

 
(1,143
)
Noncontrolling interests created in acquisitions
787

 
 

 

 

 

 

 

 

 

 

 

 

Other
12

 
 

 

 

 

 
2,577

 

 

 

 
2,577

 
85

 
2,662

Balance at March 31, 2018
$
47,099

 
 
$
261

 
$
261,396

 
$
16

 
$
16,157

 
$
12,093,006

 
$
702,915

 
$
(74,950
)
 
$
(10,226,721
)
 
$
2,494,527

 
$
587,864

 
$
3,082,391


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

6

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IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings
$
112,985

 
$
87,839

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
67,444

 
59,082

Amortization of intangibles
22,752

 
19,953

Depreciation
18,971

 
19,257

Bad debt expense
15,005

 
9,528

Deferred income taxes
(65,107
)
 
(31,895
)
Other adjustments, net
18,741

 
13,726

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


 
 
Accounts receivable
(88,367
)
 
(29,901
)
Other assets
6,730

 
(22,680
)
Accounts payable and other liabilities
(26,829
)
 
(7,592
)
Income taxes payable and receivable
(6,154
)
 
(7,034
)
Deferred revenue
26,770

 
41,725

Net cash provided by operating activities
102,941

 
152,008

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(21,555
)
 
(21,295
)
Capital expenditures
(25,855
)
 
(14,801
)
Proceeds from maturities of marketable debt securities
123,500

 
5,000

Purchases of marketable debt securities
(39,740
)
 
(4,975
)
Net proceeds from the sale of businesses and investments
20,472

 
15

Purchases of investments

 
(18,180
)
Other, net
(1,215
)
 
9,347

Net cash provided by (used in) investing activities
55,607

 
(44,889
)
Cash flows from financing activities:
 
 
 
Borrowings under Match Group Credit Facility
40,000

 

Proceeds from Match Group 2019 Senior Notes offering
350,000

 

Principal payments on Match Group Credit Facility
(300,000
)
 

Principal payments on ANGI Homeservices Term Loan
(3,438
)
 
(3,438
)
Debt issuance costs
(5,542
)
 
(193
)
Purchase of Match Group treasury stock
(24,186
)
 
(32,465
)
Proceeds from the exercise of IAC stock options
9,298

 
24,254

Proceeds from the exercise of Match Group and ANGI Homeservices stock options
573

 
1,752

Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
(14,062
)
 
(282
)
Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards
(123,148
)
 
(75,028
)
 Purchase of noncontrolling interests
(3,182
)
 
(234
)
Acquisition-related contingent consideration payments

 
(185
)
Other, net
27

 
2,669

Net cash used in financing activities
(73,660
)
 
(83,150
)
Total cash provided
84,888

 
23,969

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
815

 
2,746

Net increase in cash, cash equivalents, and restricted cash
85,703

 
26,715

Cash, cash equivalents, and restricted cash at beginning of period
2,133,685

 
1,633,682

Cash, cash equivalents, and restricted cash at end of period
$
2,219,388

 
$
1,660,397


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

7

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IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
IAC has majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish and OkCupid, and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo and Dotdash, among many other online businesses.
As used herein, "IAC," the "Company," "we," "our" or "us" and similar terms refer to IAC/InterActiveCorp and its subsidiaries (unless the context requires otherwise).
As of March 31, 2019, IAC’s economic and voting interest in:
Match Group were 80.4%, and 97.5%, respectively. All references to "Match Group" or "MTCH" in this report are to Match Group, Inc.
ANGI Homeservices were 83.3%, and 98.0%, respectively. All reference to "ANGI Homeservices" or "ANGI" in this report are to ANGI Homeservices Inc.
Basis of Presentation and Consolidation
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.
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, 2018.
Accounting for Investments and Equity Securities
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 the Financial Accounting Standards Board's ("FASB") issued Accounting Standards Update ("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, following its adoption on January 1, 2018, with any changes to fair value recognized within other income (expense), net each reporting period. Under the measurement alternative, equity investments without readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer; value is generally determined based on a market approach as of the transaction date. An investment will be considered identical or similar if it has identical or similar rights to the equity investments held by the Company. The Company reviews its equity securities for impairment each reporting period when there are qualitative factors or events that indicate possible impairment. Factors we consider in making this determination include negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. When indicators of impairment exist, the Company prepares quantitative assessments of the fair value of our equity securities, which require judgment and the use of estimates. When our assessment indicates that the fair value of the security is below the carrying value, the Company writes down the security to its fair value and records the corresponding charge within other income (expense), net.
Investments in the common stock or in-substance common stock of entities in which the Company has the ability to

8

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

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. At March 31, 2019 and December 31, 2018, the Company did not have any investments accounted for using the equity method.
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: contingencies; 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 cash equivalents and marketable debt securities; 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").
For the three months ended March 31, 2019 and 2018, consolidated revenue earned from Google was $195.8 million and $211.3 million, representing 18% and 21%, respectively, of the Company's consolidated revenue. A meaningful portion of this revenue is attributable to the services agreement with Google and earned by the Desktop business within the Applications segment and the Ask Media Group within the Emerging & Other segment. For the three months ended March 31, 2019 and 2018, revenue from Google of $88.1 million and $108.6 million was earned within the Applications segment and $96.3 million and $92.8 million within the Emerging & Other segment, respectively. Accounts receivable related to revenue earned from Google totaled $71.6 million and $69.1 million at March 31, 2019 and December 31, 2018, respectively.
The services agreement became effective on April 1, 2016, following the expiration of the previous services agreement, and expires on March 31, 2020. 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. On February 11, 2019, the Company and Google amended the services agreement, effective as of April 1, 2020.  The amendment extends the expiration date of the agreement to March 31, 2023; provided, that beginning September 2020 and each September thereafter, either party may, after discussion with the other party, terminate the services agreement, effective on September 30 of the year following the year such notice is given.  The Company believes that the amended agreement, taken as a whole, is comparable to the Company’s previously existing agreement with Google.
Adoption of ASU No. 2016-02, Leases (Topic 842)
The Company adopted ASU No. 2016-02, Leases (Topic 842) ("ASC 842") effective January 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position.
The adoption of ASC 842 resulted in the recognition of $154.7 million of right of use assets ("ROU assets") and related lease liabilities as of January 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s

9

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

consolidated statement of operations and consolidated statement of cash flows. In addition, the adoption of ASC 842 did not impact the leverage calculations set forth in the agreements governing the outstanding debt or credit agreements of the Company or its subsidiaries, because, in each circumstance, the leverage calculations are not affected by the lease liabilities that were recorded upon adoption of ASC 842.
The Company adopted ASC 842 prospectively and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.
See "Note 3—Leases" for additional information on the adoption of ASC 842.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—REVENUE RECOGNITION
General Revenue Recognition
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 expects to be entitled to in exchange for those services or goods.
The Company's disaggregated revenue disclosures are presented in "Note 9—Segment Information."
Deferred Revenue
Deferred revenue consists of advance payments that are received or are contractually due in advance of the Company's performance. The Company’s deferred revenue is reported on a contract by contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the term of the applicable subscription period or expected completion of our performance obligation is one year or less. The current and non-current deferred revenue balances at December 31, 2018 are $360.0 million and $1.7 million, respectively. During the three months ended March 31, 2019, the Company recognized $234.8 million of revenue that was included in the deferred revenue balance as of December 31, 2018. The current and non-current deferred revenue balances at March 31, 2019 are $386.9 million and $1.5 million, respectively. Non-current deferred revenue is included in “Other long-term liabilities” in the accompanying consolidated balance sheet.
Practical Expedients and Exemptions
As permitted under the practical expedient available under ASU No. 2014-09, Revenue from Contracts with Customers, 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.
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 amount of capitalized sales commissions where the customer relationship period is greater than one year is $42.3 million and $40.5 million at March 31, 2019 and December 31, 2018, respectively.

NOTE 3—LEASES
The Company leases land, office space, data center facilities and equipment used in connection with its operations under various operating leases, the majority of which contain escalation clauses. The Company does not have any financing leases.
ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the present value of the Company’s obligation to make payments arising from leases. ROU assets and related lease liabilities are based on the present value of fixed lease payments over the lease term using the Company's and its publicly traded subsidiaries'

10

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

respective incremental borrowing rates on the lease commencement date or January 1, 2019 for leases that commenced prior to that date. The Company combines the lease and non-lease components of lease payments in determining ROU assets and related lease liabilities. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option. Leases with an initial term of twelve months or less ("short-term leases") are not recorded on the accompanying consolidated balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease.
Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Leases
 
Balance Sheet Classification
 
March 31, 2019
 
 
 
 
(In thousands)
Assets:
 
 
 
 
Right of use assets
 
Right of use assets
 
$
172,558


 
 
 

Liabilities:
 
 
 
 
Current lease liabilities
 
Accrued expenses and other current liabilities
 
31,215

Long-term lease liabilities
 
Other long-term liabilities
 
185,752

Total lease liabilities
 
 
 
$
216,967


Lease Cost
 
Income Statement Classification
 
Three Months Ended March 31, 2019
 
 
 
 
(In thousands)
Fixed lease cost
 
Cost of revenue
 
$
1,075

Fixed lease cost
 
Selling and marketing expense
 
1,909

Fixed lease cost
 
General and administrative expense
 
7,190

Fixed lease cost
 
Product development expense
 
318

Total fixed lease cost (a)
 
 
 
10,492

Variable lease cost
 
Cost of revenue
 
157

Variable lease cost
 
Selling and marketing expense
 
304

Variable lease cost
 
General and administrative expense
 
1,804

Variable lease cost
 
Product development expense
 
54

Total variable lease cost
 
 
 
2,319

Net lease cost
 
 
 
$
12,811

_____________________
(a) Includes approximately $1.3 million of short-term lease cost and $0.5 million of sublease income.

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

Maturities of lease liabilities(b):
 
 
March 31, 2019
 
 
(In thousands)
2019
 
30,727

2020
 
41,238

2021
 
35,037

2022
 
28,211

2023
 
25,022

After 2023
 
230,683

Total
 
390,918

     Less: Interest
 
173,951

Present value of lease liabilities
 
$
216,967

_____________________
(b) 
Lease payments exclude $54.5 million of legally binding minimum lease payments for leases signed but not yet commenced.

The following are the weighted average assumptions used for lease term and discount rate:
 
 
March 31, 2019
Remaining lease term
 
15.8 years

Discount rate
 
5.99
%

 
 
Three Months Ended March 31, 2019
 
 
(In thousands)
Other Information:
 
 
Right of use assets obtained in exchange for lease liabilities
 
$
28,270

Cash paid for amounts included in the measurement of lease liabilities
 
$
13,175


NOTE 4—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 months ended March 31, 2019 and 2018, the Company recorded an income tax benefit, despite pre-tax income, of $63.6 million and $29.0 million, respectively, due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards.

12

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

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.
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 2016. The statute of limitations for the years 2010 through 2015 has been extended to December 31, 2019. Returns filed in 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 adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided 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 March 31, 2019 and December 31, 2018, unrecognized tax benefits, including interest and penalties, are $51.3 million and $52.3 million, respectively. If unrecognized tax benefits at March 31, 2019 are subsequently recognized, $48.0 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2018 was $49.1 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $24.0 million by March 31, 2019, due to expirations of statutes of limitations or other settlements; $23.5 million of which would reduce the income tax provision.
NOTE 5—FINANCIAL INSTRUMENTS
Marketable Securities
At March 31, 2019 and December 31, 2018, the fair value of marketable securities are as follows:
 
March 31, 2019
 
December 31, 2018
 
(In thousands)
Available-for-sale marketable debt securities
$
39,954

 
$
123,246

Marketable equity security
447

 
419

     Total marketable securities
$
40,401

 
$
123,665


At March 31, 2019, 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
$
24,983

 
$

 
$

 
$
24,983

Commercial paper
14,971

 

 

 
14,971

     Total available-for-sale marketable debt securities
$
39,954

 
$

 
$