NOTES TO CONSOLIDATED & COMBINED
FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Separation
On December 19, 2019, IAC/InterActiveCorp
("Old IAC") entered into a Transaction Agreement (as amended as of April 28, 2020 and June 22, 2020, the "Transaction
Agreement") with Match Group, Inc. ("Old MTCH"), IAC Holdings, Inc. ("New IAC" or the
"Company"), a direct wholly owned subsidiary of Old IAC, and Valentine Merger Sub LLC, an indirect wholly owned subsidiary
of Old IAC. On June 30, 2020, the businesses of Old MTCH were separated from the remaining businesses of Old IAC through
a series of transactions that resulted in the pre-transaction stockholders of Old IAC owning shares in two, separate public companies—(1) Old
IAC, which was renamed Match Group, Inc. ("New Match") and which owns the businesses of Old MTCH and certain Old
IAC financing subsidiaries, and (2) New IAC, which was renamed IAC/InterActiveCorp, and which owns Old IAC's other businesses—and
the pre-transaction stockholders of Old MTCH (other than Old IAC) owning shares in New Match. This transaction is referred to
as the "Separation".
Nature of Operations
The Company operates Vimeo, Dotdash and
Care.com, among many other online businesses, and has majority ownership of ANGI Homeservices, which includes HomeAdvisor, Angie’s
List and Handy.
Basis of Presentation
As used herein, ‘‘IAC,’’
the ‘‘Company,’’ ‘‘we,’’ ‘‘our’’ or ‘‘us’’
and similar terms refer to IAC/InterActiveCorp and the businesses comprising IAC (unless the context requires otherwise).
The Company prepares its consolidated
and combined financial statements (collectively referred to herein as "financial statements") in accordance with U.S.
generally accepted accounting principles (‘‘GAAP’’).
The Company's financial statements were
prepared on a consolidated basis beginning June 30, 2020 and on a combined basis for periods prior thereto. The difference
in presentation is due to the fact that the final steps of the legal reorganization, including the contribution of all the entities
that comprise the Company following the Separation, were not completed until June 30, 2020. The preparation of the financial
statements on a combined basis for periods prior to June 30, 2020 allows for the financial statements to be presented on
a consistent basis for all periods presented.
The historical combined financial statements
of the Company have been derived from the consolidated financial statements and accounting records of Old IAC. The combined financial
statements reflect the historical financial position, results of operations and cash flows of the entities comprising the Company
since their respective dates of acquisition by Old IAC and the allocation to the Company of certain Old IAC corporate expenses
based on the historical financial statements and accounting records of Old IAC through June 30, 2020. 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. For the purpose of the combined financial statements, income taxes have been computed
as if the entities comprising the Company filed tax returns on a standalone, separate basis for periods prior to the Separation.
All intercompany transactions and balances
between and among the Company and its subsidiaries have been eliminated. All intercompany transactions between (i) the Company
and (ii) Old IAC and its subsidiaries for periods prior to the Separation are considered to be effectively settled for cash
at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected
in the statement of cash flows as a financing activity and in the balance sheet as ‘‘Invested capital.’’
In management’s opinion, the assumptions
underlying the historical financial statements of the Company, including the basis on which the expenses have been allocated from
Old IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, stand-alone
company for the periods presented.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The accompanying unaudited financial statements
have been prepared in accordance with GAAP for interim financial information and with the rules and regulations of the Securities
and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by GAAP
for complete annual financial statements. In the opinion of management, the accompanying unaudited financial statements include
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Interim results are not
necessarily indicative of the results that may be expected for the full year. The accompanying unaudited interim financial statements
should be read in conjunction with the annual audited financial statements of the Company and notes thereto for the year ended
December 31, 2019 filed on the Current Report on Form 8-K with the SEC on October 5, 2020.
COVID-19 Update and Impairments
The impact on the Company from the COVID-19
outbreak, which has been declared a "pandemic" by the World Health Organization, has been varied. The extent to which
developments related to the COVID-19 outbreak and measures designed to curb its spread continue to impact the Company’s
business, financial condition and results of operations will depend on future developments, all of which are highly uncertain
and many of which are beyond the Company’s control, including the speed of contagion, the development and implementation
of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel, discretionary
services and other activity, and public reactions to these developments. For example, these developments and measures have resulted
in rapid and adverse changes to the operating environment in which we do business, as well as significant uncertainty concerning
the near and long term economic ramifications of the COVID-19 outbreak, which have adversely impacted our ability to forecast
our results and respond in a timely and effective manner to trends related to the COVID-19 outbreak. The longer the global outbreak
and measures designed to curb the spread of the virus continue to adversely affect levels of consumer confidence, discretionary
spending and the willingness of consumers to interact with other consumers, vendors and service providers face-to-face (and in
turn, adversely affect demand for the Company’s various products and services), the greater the adverse impact is likely
to be on the Company’s business, financial condition and results of operations and the more limited will be the Company’s
ability to try and make up for delayed or lost revenues.
In March 2020, the Company's ANGI
Homeservices business experienced a decline in demand for service requests, driven primarily by decreases in demand in certain
categories of jobs (particularly discretionary indoor projects). In the second quarter of 2020, ANGI Homeservices experienced
a rebound in service requests, exceeding pre-COVID-19 growth levels, driven by increased demand from homeowners who spent more
time at home due to measures taken to reduce the spread of COVID-19. ANGI Homeservices continued to experience strong demand for
home services in the third quarter of 2020. However, many service professionals' businesses have been adversely impacted by labor
and material constraints and many service professionals have limited capacity to take on new business, which has negatively impacted
ANGI Homeservices' ability to monetize this increased level of service requests. Vimeo has seen strong revenue growth as the demand
for communication via video has increased due to the pandemic. The Search segment has experienced a decline in revenue due, in
part, to the decrease in advertising rates due to the impact of COVID-19, which decrease in rates was more significant earlier
in the year.
In the quarter ended March 31, 2020,
the Company determined that the effects of COVID-19 were an indicator of possible impairment for certain of its assets and identified
the following impairments:
|
•
|
a $212.0 million impairment related to the goodwill of
the Desktop reporting unit;
|
|
•
|
a $21.4 million impairment related to certain indefinite-lived
intangible assets of the Desktop reporting unit;
|
|
•
|
a $51.5 million impairment of certain equity securities
without readily determinable fair values; and
|
|
•
|
a $7.5 million impairment of a note receivable and a warrant
related to certain investees.
|
There were no impairments identified during
the second quarter of 2020.
In the quarter ended September 30,
2020, the Company recorded impairments of $53.2 million and $10.8 million related to the goodwill and intangible assets, respectively,
of the Desktop reporting unit. Refer to "Certain Risks and Concentrations—Services Agreement with Google" for
additional information.
In addition, the United States, which
represents 81% and 80% of the Company's revenue for the three and nine months ended September 30, 2020, respectively, has
experienced a significant resurgence of the COVID-19 virus with record levels of infection being reported in the weeks following
September 30, 2020. Europe, which is the second largest market for the Company's products and services, has also seen a dramatic
resurgence in COVID-19. This resurgence and the measures designed to curb its spread could materially and adversely affect our
business, financial condition and results of operations.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Accounting Estimates
Management of the Company is required
to make certain estimates, judgments and assumptions during the preparation of its financial statements in accordance with GAAP.
These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related
disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
On an ongoing basis, the Company evaluates
its estimates and judgments, including those related to: the fair values of cash equivalents and marketable debt and equity securities;
the carrying value of accounts receivable, including the determination of the allowance for credit losses; the determination of
revenue reserves; the carrying value of right-of-use assets ("ROU assets"); the useful lives and recoverability of definite-lived
intangible assets and building, capitalized software, leasehold improvements and equipment; the recoverability of goodwill and
indefinite-lived intangible assets; the fair value of equity securities without readily determinable fair values; contingencies;
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.
Accounting for Investments in Equity Securities
Investments in equity securities, other
than those of the Company's consolidated and combined subsidiaries and those accounted for under the equity method, if applicable,
are accounted for at fair value or under the measurement alternative of Financial Accounting Standards Board ("FASB")
Accounting Standards Update ("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Financial
Liabilities, 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 securities
of the same issuer; value is generally determined based on a market approach as of the transaction date. A security will be considered
identical or similar if it has identical or similar rights to the equity securities held by the Company. The Company reviews its
investments in equity securities without readily determinable fair values for impairment each reporting period when there are
qualitative factors or events that indicate possible impairment. Factors the Company considers 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 its investments in equity
securities, which require judgment and the use of estimates. When the Company's assessment indicates that the fair value of the
investment is below its carrying value, the Company writes down the investment to its fair value and records the corresponding
charge within other income (expense), net. See "Note 5 - Financial Instruments and Fair Value Measurements" for additional
information on the impairments of certain equity securities without readily determinable fair values recorded during the nine
months ended September 30, 2020.
In the event the Company has 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 balance sheet. At September 30,
2020 and December 31, 2019, the Company did not have any investments accounted for using the equity method.
General Revenue Recognition
Revenue is recognized when control of
the promised services or goods is transferred to the Company's customers and in the 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 10—Segment Information."
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Prior to January 1, 2020, ANGI's
Handy business recorded revenue on a net basis. Effective January 1, 2020, the Company modified the Handy terms and conditions
so that Handy, rather than the service professional, has the contractual relationship with the consumer to deliver the service
and Handy, rather than the consumer, has the contractual relationship with the service professional. Consumers request services
and pay for such services directly through the Handy platform and then Handy fulfills the request with independently established
home services providers engaged in a trade, occupation and/or business that customarily provides such services. This change in
contractual terms requires gross revenue accounting treatment effective January 1, 2020. Also, in the case of certain tasks,
HomeAdvisor provides a pre-priced product offering, pursuant to which consumers can request services through a HomeAdvisor platform
and pay HomeAdvisor for the services directly. HomeAdvisor then fulfills the request with independently established home services
providers engaged in a trade, occupation and/or business that customarily provides such services. Revenue from HomeAdvisor’s
pre-priced product offering is also recorded on a gross basis effective January 1, 2020. In addition to changing the presentation
of revenue to gross from net, the timing of revenue recognition changed for HomeAdvisor pre-priced jobs and will be later than
consumer connection revenue because the Company will not be able to record revenue, generally, until the service professional
completes the job on the Company's behalf. The change to gross revenue reporting for Handy and HomeAdvisor’s pre-priced
product offering, effective January 1, 2020, resulted in an increase in revenue of $20.8 million and $51.3 million during
the three and nine months ended September 30, 2020, respectively.
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 the Company's performance obligation is one year or less.
The current and non-current deferred revenue balances at December 31, 2019 are $178.6 million and $1.3 million, respectively.
During the nine months ended September 30, 2020, the Company recognized $163.3 million of revenue that was included in the
deferred revenue balance as of December 31, 2019. During the nine months ended September 30, 2019, the Company recognized
$139.0 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 September 30, 2020 are $268.2 million and $1.5 million, respectively. Non-current deferred revenue
is included in “Other long-term liabilities” in the accompanying 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
the Company has 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 initial customer relationship period is greater than one year is $61.4 million
and $42.4 million at September 30, 2020 and December 31, 2019, respectively. The current and non-current capitalized
sales commissions balances are included in "Other current assets" and "Other non-current assets" in the accompanying
balance sheet and are $52.5 million and $8.9 million, and $36.1 million and $6.2 million, at September 30, 2020 and December 31,
2019, respectively.
Credit Losses and Revenue Reserve
The following table presents the changes
in the allowance for credit losses for the nine months ended September 30, 2020:
|
|
September 30, 2020
|
|
|
|
(In thousands)
|
|
Balance at January 1
|
|
$
|
20,257
|
|
Current period provision for credit losses
|
|
|
62,594
|
|
Write-offs charged against the allowance
|
|
|
(54,381
|
)
|
Recoveries collected
|
|
|
1,897
|
|
Balance at September 30
|
|
$
|
30,367
|
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The revenue reserve was $4.6 million and
$3.9 million at September 30, 2020 and December 31, 2019, respectively. The total allowance for credit losses and revenue
reserve was $35.0 million and $24.1 million as of September 30, 2020 and December 31, 2019, respectively.
Certain Risks and Concentrations—Services Agreement
with Google (the "Services Agreement")
A meaningful portion of the Company's
revenue is attributable to the Services Agreement. In addition, the Company earns certain other advertising revenue from Google
that is not attributable to the Services Agreement. For the three and nine months ended September 30, 2020, total revenue
earned from Google was $132.4 million and $385.9 million, representing 17% and 18%, respectively, of the Company's revenue. For
the three and nine months ended September 30, 2019, total revenue earned from Google was $182.4 million and $574.7 million,
representing 26% and 28%, respectively, of the Company's combined revenue. Accounts receivable related to revenue earned from
Google totaled $46.3 million and $53.0 million at September 30, 2020 and December 31, 2019, respectively.
Revenue attributable to the Services Agreement
is earned by the Desktop business and Ask Media Group, both within the Search segment. For the three and nine months ended September 30,
2020, revenue from the Services Agreement of $35.6 million and $118.9 million, respectively, was earned within the Desktop business
and $83.7 million and $231.2 million, respectively, within Ask Media Group. For the three and nine months ended September 30,
2019, revenue from the Services Agreement of $68.0 million and $234.1 million, respectively, was earned within the Desktop business
and $100.3 million and $299.1 million, respectively, within Ask Media Group.
The Services Agreement expires on March 31,
2023; provided that during each September, 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. Neither party gave notice to the other party
to terminate the Services Agreement pursuant to this provision in September 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. These updates may be specific to the Services Agreement or could be more general and thereby impact the
Company as well as other companies. These policy and guideline updates could in turn require modifications to, or prohibit and/or
render obsolete certain of the Company's products, services and/or business practices, which could be costly to address or otherwise
have an adverse effect on the Company's financial condition and results of operations, particularly the businesses in our Search
segment. From time to time, Google has made changes to the policies under the Services Agreement and has also made industry-wide
changes that have negatively impacted the Desktop business and Google may do so in the future.
Google implemented industry-wide policy
changes that became effective on July 1, 2019 and August 27, 2020. These industry-wide changes, combined with other
changes to policies under the Services Agreement during the second half of 2019, have had a negative impact on the historical
and expected future results of operations of the Desktop business.
In the quarter ended September 30,
2020, the Company reassessed the fair values of the Desktop reporting unit and the related indefinite-lived intangible assets
and recorded impairments equal to the remaining carrying value of the goodwill of $53.2 million and $10.8 million related to the
intangible assets. The reduction in the Company’s fair value estimates is due to lower consumer queries, increasing challenges
in monetization and the reduced ability to market profitably due to policy changes implemented by Google and other browsers. The
effects of COVID-19 on monetization were an additional factor.
Adoption of New Accounting Pronouncements
Adoption of ASU No. 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
The Company adopted ASU No. 2016-13
effective January 1, 2020. ASU No. 2016-13 replaces the “incurred loss”
approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than
incurred losses. The Company adopted ASU No. 2016-13 using the modified retrospective approach and there was no cumulative
effect arising from the adoption. The adoption of ASU No. 2016-13 did not have a material impact on the Company's financial
statements.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Adoption of ASU No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes
The Company adopted ASU
No. 2019-12 effective January 1, 2020, which simplifies the accounting for income
taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the
current guidance to promote consistency among reporting entities. Most amendments within ASU No. 2019-12 are required to
be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.
The Company adopted ASU No. 2019-12 on January 1, 2020 using the modified retrospective basis for those amendments that
are not applied on a prospective basis. The adoption of ASU No. 2019-12 did not have a material impact on the Company's financial
statements.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year presentation.
NOTE 2—INCOME TAXES
The Company was included within Old IAC’s
tax group for purposes of federal and consolidated state income tax return filings through June 30, 2020, the date of the
Separation. For periods prior thereto, the income tax benefit/provision were computed for the Company on an as if standalone,
separate return basis and payments to and refunds from Old IAC for the Company’s share of Old IAC’s consolidated federal
and state tax return liabilities/receivables calculated on this basis have been reflected within cash flows from operating activities
in the accompanying statement of cash flows.
At the end of each interim period, the
Company estimates 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 the Company's 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.
We have calculated the provision for income
taxes during the three and nine months ended September 30, 2020 using the estimated annual effective tax rate method described
above. We have used the discrete effective tax rate method to calculate domestic taxes for the three and nine months ended September 30,
2019 because small changes in estimated ordinary income would result in significant changes in the estimated annual effective
tax rate.
For the three and nine months ended September 30,
2020, the Company recorded an income tax benefit of $29.5 million and $107.0 million respectively, due primarily to excess tax
benefits generated by the exercise and vesting of stock-based awards, partially offset by the non-deductible portion of the Desktop
goodwill impairment. For the three and nine months ended September 30, 2019, the Company recorded an income tax benefit of
$19.1 million and $53.3 million respectively, due primarily to excess tax benefits generated by the exercise and vesting of stock-based
awards.
As a result of the Separation, the Company's
net deferred tax liability was adjusted via invested capital for tax attributes allocated to it from Old IAC's consolidated federal
and state tax filings. The allocation of tax attributes that was recorded as of June 30, 2020 was preliminary. Any subsequent
adjustment to allocated tax attributes will be recorded as an adjustment to deferred taxes and additional paid-in capital. This
adjustment is expected to be made in the fourth quarter of 2021 following the filing of income tax returns for the year ending
December 31, 2020.
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.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The Company is routinely under audit by
federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated
tax returns with Old IAC. These audits include questioning the timing and the amount of income and deductions and the allocation
of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") has substantially completed
its audit of Old IAC’s federal income tax returns for the years ended December 31, 2010 through 2016, which includes
the operations of the Company. The IRS began its audit of the year ended December 31, 2017 in the second quarter of 2020.
The statute of limitations for the years 2010 through 2012 and for the years 2013 through 2017 have been extended to May 31,
2021 and December 31, 2021, respectively. 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 the examination of prior year tax returns. The Company considers many factors when evaluating and estimating its
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 September 30, 2020 and December 31,
2019, unrecognized tax benefits, including interest and penalties, are $19.5 million and $20.3 million, respectively. Unrecognized
tax benefits, including interest and penalties, at September 30, 2020 decreased by $0.8 million due primarily to research
credits. If unrecognized tax benefits at September 30, 2020 are subsequently recognized, $18.0 million, net of related deferred
tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2019 was $18.9 million.
The Company believes it is reasonably possible that its unrecognized tax benefits could decrease by $6.1 million by March 31,
2021, due primarily to expirations of statutes of limitations and other settlements, all of which would reduce the income tax
provision.
NOTE 3—BUSINESS COMBINATION
On February 11, 2020, the Company
acquired 100% of Care.com, a leading global platform for finding and managing family care, for a total purchase price of $626.9
million, which includes cash consideration of $587.0 million paid by the Company and the settlement of all outstanding vested
employee equity awards for $40.0 million paid by Care.com prior to the completion of the acquisition. The Company's purchase accounting
is not yet complete and is not expected to be finalized until the first quarter of 2021; the allocation of purchase price to the
fair value of assets acquired and liabilities assumed, primarily intangible assets, goodwill, income tax related assets and liabilities
and contingent liabilities, is preliminary and subject to revision.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The table below summarizes the preliminary
estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
Care.com
|
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
|
$
|
57,702
|
|
Short-term investments
|
|
|
20,000
|
|
Accounts receivable
|
|
|
20,213
|
|
Other current assets
|
|
|
7,479
|
|
Property and equipment
|
|
|
2,894
|
|
Goodwill
|
|
|
415,164
|
|
Intangible assets
|
|
|
145,300
|
|
Other non-current assets
|
|
|
30,444
|
|
Total assets
|
|
|
699,196
|
|
Deferred revenue
|
|
|
(13,422
|
)
|
Other current liabilities
|
|
|
(38,801
|
)
|
Deferred income taxes
|
|
|
(33,960
|
)
|
Other non-current liabilities
|
|
|
(26,039
|
)
|
Net assets acquired
|
|
$
|
586,974
|
|
The Company acquired Care.com because
it is complementary to other marketplace businesses of IAC. The purchase price was based on the expected financial performance
of Care.com, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion
of the purchase price being attributed to goodwill.
The preliminary estimated fair values
of the identifiable intangible assets acquired at the date of acquisition are as follows:
|
|
Care.com
|
|
|
|
(In thousands)
|
|
|
Useful Life
(Years)
|
|
Indefinite-lived trade name and trademarks
|
|
$
|
59,300
|
|
|
|
Indefinite
|
|
Developed technology
|
|
|
49,500
|
|
|
|
2
|
|
Customer relationships
|
|
|
35,700
|
|
|
|
2 - 5
|
|
Provider relationships
|
|
|
800
|
|
|
|
4
|
|
Total identifiable intangible assets acquired
|
|
$
|
145,300
|
|
|
|
|
|
Accounts receivable, other current assets,
other non-current assets, other current liabilities and other non-current liabilities of Care.com were reviewed and adjusted to
their fair values at the date of acquisition, as necessary. The fair value of deferred revenue was determined using an income
approach that utilized a cost to fulfill analysis. The fair values of the trade name and developed technology were determined
using an income approach that utilized the relief from royalty methodology. The fair values of customer relationships and provider
relationships were determined using an income approach that utilized the excess earnings methodology. The valuations of the intangible
assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing
of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
The financial results of Care.com are
included in the Company's financial statements, within the Emerging & Other segment, beginning February 11, 2020.
For the three and nine months ended September 30, 2020, the Company included $56.7 million and $123.2 million of revenue,
respectively, and $15.7 million and $31.6 million of net loss, respectively, in its statement of operations related to Care.com.
For the three and nine months ended September 30, 2020, the net loss of Care.com reflects a reduction in revenue of $2.4
million and $15.7 million, respectively, due to the write-off of deferred revenue due to purchase accounting fair value adjustments
and $2.6 million and $9.6 million, respectively, in transaction-related costs, including severance.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
Unaudited pro forma financial information
The unaudited pro forma financial information
in the table below presents the results of the Company and Care.com as if this acquisition had occurred on January 1, 2019.
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
acquisition occurred on January 1, 2019. For the three and nine months ended September 30, 2020, pro forma adjustments
include a reduction in transaction related costs (including stock-based compensation expense related to the acceleration of vesting
of outstanding employee equity awards) of $2.6 million and $65.7 million, respectively, because they are one-time in nature and
will not have a continuing impact on operations and an increase in revenue of $2.4 million and $15.6 million, respectively, related
to deferred revenue written off as a part of the acquisition. For the three and nine months ended September 30, 2019, pro
forma adjustments include an increase in amortization of intangibles of $20.9 million and $30.0 million, respectively, and a decrease
in revenue of $1.1 million and $10.6 million, respectively, related to the deferred revenue written off as a part of the acquisition.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Revenue
|
|
$
|
790,783
|
|
|
$
|
757,574
|
|
|
$
|
2,240,452
|
|
|
$
|
2,182,252
|
|
Net earnings (loss) attributable to IAC shareholders
|
|
$
|
190,766
|
|
|
$
|
(646
|
)
|
|
$
|
(221,290
|
)
|
|
$
|
(31,083
|
)
|
Basic earnings (loss) per share attributable to IAC shareholders
|
|
$
|
2.24
|
|
|
$
|
(0.01
|
)
|
|
$
|
(2.59
|
)
|
|
$
|
(0.37
|
)
|
Diluted earnings (loss) per share attributable to IAC shareholders
|
|
$
|
2.11
|
|
|
$
|
(0.01
|
)
|
|
$
|
(2.59
|
)
|
|
$
|
(0.37
|
)
|
NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are
as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Goodwill
|
|
$
|
1,767,834
|
|
|
$
|
1,616,867
|
|
Intangible assets with indefinite lives
|
|
|
245,932
|
|
|
|
225,296
|
|
Intangible assets with definite lives, net of accumulated amortization
|
|
|
148,483
|
|
|
|
124,854
|
|
Total goodwill and intangible assets, net
|
|
$
|
2,162,249
|
|
|
$
|
1,967,017
|
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The following table presents the balance
of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the nine months ended September 30,
2020:
|
|
Balance at
December 31,
2019
|
|
|
Additions
|
|
|
(Deductions)
|
|
|
Impairment
|
|
|
Foreign
Exchange
Translation
|
|
|
Balance at
September 30,
2020
|
|
|
|
(In thousands)
|
|
ANGI Homeservices
|
|
$
|
884,296
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
736
|
|
|
$
|
885,032
|
|
Vimeo
|
|
|
219,374
|
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
219,336
|
|
Search
|
|
|
265,146
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(265,146
|
)
|
|
|
—
|
|
|
|
—
|
|
Emerging & Other
|
|
|
248,051
|
|
|
|
415,164
|
|
|
|
—
|
|
|
|
—
|
|
|
|
251
|
|
|
|
663,466
|
|
Total
|
|
$
|
1,616,867
|
|
|
$
|
415,164
|
|
|
$
|
(38
|
)
|
|
$
|
(265,146
|
)
|
|
$
|
987
|
|
|
$
|
1,767,834
|
|
Additions are related to the acquisition
of Care.com (included in the Emerging & Other segment).
In the quarter ended March 31, 2020,
the Company determined that the effects of COVID-19 were an indicator of possible impairment for certain of its reporting units
and indefinite-lived intangible assets and identified the following impairments:
|
•
|
a $212.0 million impairment related to the goodwill of
the Desktop reporting unit (included in the Search segment) and
|
|
•
|
a $21.4 million impairment related to certain indefinite-lived
intangible assets of the Desktop reporting unit (included in the Search segment).
|
In the quarter ended September 30,
2020, the Company reassessed the fair values of the Desktop reporting unit and the related indefinite-lived intangible assets
and recorded impairments equal to the remaining carrying value of the goodwill of $53.2 million and $10.8 million related to the
intangible assets. The reduction in the Company’s fair value estimates is due to lower consumer queries, increasing challenges
in monetization and the reduced ability to market profitably due to policy changes implemented by Google and other browsers. The
effects of COVID-19 on monetization were an additional factor.
The Company also reassessed the fair value
of the Mosaic Group reporting unit (included in the Emerging & Other segment) and determined that as of September 30,
2020, its fair value approximates its carrying value of $239.9 million. To the extent there is a decline in the fair value of
the Mosaic reporting unit below its carrying value, a goodwill impairment would be recorded to the extent the carrying value exceeds
the fair value.
The fair values of the Desktop and Mosaic
Group reporting units were determined using both an income approach based on discounted cash flows ("DCF") and a market
approach. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items,
including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in
the DCF analyses were based on the most recent forecasts for Desktop and Mosaic Group for 2020 and each of the years in the forecast
period, which were updated in light of the factors described above. For years beyond the forecast period, Desktop and Mosaic Group
estimates were based, in part, on forecasted growth rates. The discount rates used in the DCF analyses were intended to reflect
the risks inherent in the expected future cash flows of the Desktop and Mosaic Group reporting units. The discount rate used for
determining the fair value of both the Desktop and Mosaic Group reporting units was 15.0%. Determining fair value using a market
approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of
companies. From the comparable companies, a representative market multiple is determined, which is applied to financial metrics
to estimate the fair value of the Desktop and Mosaic Group reporting units. To determine a peer group of companies for Desktop
and Mosaic Group, the Company considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics,
and brand strength operating in their respective sectors. The aggregate carrying value of goodwill for which the most recent estimate
of the excess of fair value over carrying value is less than 20% is approximately $655.0 million.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The following table presents the balance
of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31,
2019:
|
|
Balance at
December 31,
2018
|
|
|
Additions
|
|
|
(Deductions)
|
|
|
Impairment
|
|
|
Foreign
Exchange
Translation
|
|
|
Balance at
December 31, 2019
|
|
|
|
(In thousands)
|
|
ANGI Homeservices
|
|
$
|
895,071
|
|
|
$
|
18,326
|
|
|
$
|
(29,293
|
)
|
|
$
|
—
|
|
|
$
|
192
|
|
|
$
|
884,296
|
|
Vimeo
|
|
|
77,152
|
|
|
|
142,222
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
219,374
|
|
Search
|
|
|
265,146
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
265,146
|
|
Emerging & Other
|
|
|
246,748
|
|
|
|
4,765
|
|
|
|
—
|
|
|
|
(3,318
|
)
|
|
|
(144
|
)
|
|
|
248,051
|
|
Total
|
|
$
|
1,484,117
|
|
|
$
|
165,313
|
|
|
$
|
(29,293
|
)
|
|
$
|
(3,318
|
)
|
|
$
|
48
|
|
|
$
|
1,616,867
|
|
Additions primarily relate to the acquisitions
of Magisto (included in the Vimeo segment) and Fixd Repair (included in the ANGI Homeservices segment). Deductions primarily relate
to tax benefits of acquired attributes related to the acquisition of Handy (included in the ANGI Homeservices segment). During
the fourth quarter of 2019, the Company recorded an impairment of $3.3 million related to the goodwill of the College Humor Media
business (included in the Emerging & Other Segment), which was sold on March 16, 2020.
The September 30, 2020 goodwill balances
reflect accumulated impairment losses of $981.3 million and $198.3 million at Search and Dotdash, respectively. The December 31,
2019 goodwill balances reflect accumulated impairment losses of $716.2 million and $198.3 million at Search and Dotdash, respectively,
and $14.9 million related to College Humor Media (included in the Emerging & Other segment).
As described above, the Company updated
its calculations of the fair value for certain of its indefinite-lived intangible assets as of March 31, 2020 and September 30,
2020 and recorded impairments of $32.2 million in aggregate at Desktop, related to indefinite-lived trade names. The impairment
of indefinite-lived intangible assets is included in “Amortization of intangibles” in the accompanying statement of
operations. The Company determines the fair value of indefinite-lived intangible assets using an avoided royalty DCF valuation
analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and
estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses were intended to reflect
the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in
the DCF analyses were based upon an estimate of the royalty rates that a market participant would pay to license the Company's
trade names and trademarks. The discount rate used to value the trade names that were impaired in the first quarter of 2020 was
15.0% and the royalty rate was 1.0%. The aggregate carrying value of indefinite-lived intangible assets for which the most recent
estimate of the excess of fair value over carrying value is less than 20% is approximately $59.3 million.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
At September 30, 2020 and December 31,
2019, intangible assets with definite lives are as follows:
|
|
September 30, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted-Average
Useful Life
(Years)
|
|
|
|
(In thousands)
|
|
|
|
|
Technology
|
|
$
|
188,893
|
|
|
$
|
(102,542
|
)
|
|
$
|
86,351
|
|
|
|
3.9
|
|
Service professional relationships
|
|
|
97,618
|
|
|
|
(96,799
|
)
|
|
|
819
|
|
|
|
3.0
|
|
Customer lists and user base
|
|
|
58,396
|
|
|
|
(27,050
|
)
|
|
|
31,346
|
|
|
|
3.6
|
|
Trade names
|
|
|
45,691
|
|
|
|
(16,845
|
)
|
|
|
28,846
|
|
|
|
2.1
|
|
Memberships
|
|
|
15,900
|
|
|
|
(15,900
|
)
|
|
|
—
|
|
|
|
3.0
|
|
Other
|
|
|
10,439
|
|
|
|
(9,318
|
)
|
|
|
1,121
|
|
|
|
3.4
|
|
Total
|
|
$
|
416,937
|
|
|
$
|
(268,454
|
)
|
|
$
|
148,483
|
|
|
|
3.4
|
|
|
|
December 31, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted-Average
Useful Life
(Years)
|
|
|
|
(In thousands)
|
|
|
|
|
Technology
|
|
$
|
143,255
|
|
|
$
|
(73,483
|
)
|
|
$
|
69,772
|
|
|
|
4.5
|
|
Service professional relationships
|
|
|
99,651
|
|
|
|
(76,445
|
)
|
|
|
23,206
|
|
|
|
2.9
|
|
Customer lists and user base
|
|
|
44,286
|
|
|
|
(24,226
|
)
|
|
|
20,060
|
|
|
|
3.3
|
|
Trade names
|
|
|
12,777
|
|
|
|
(8,082
|
)
|
|
|
4,695
|
|
|
|
3.5
|
|
Memberships
|
|
|
15,900
|
|
|
|
(11,940
|
)
|
|
|
3,960
|
|
|
|
3.0
|
|
Other
|
|
|
10,439
|
|
|
|
(7,278
|
)
|
|
|
3,161
|
|
|
|
3.4
|
|
Total
|
|
$
|
326,308
|
|
|
$
|
(201,454
|
)
|
|
$
|
124,854
|
|
|
|
3.7
|
|
At September 30, 2020, amortization
of intangible assets with definite lives is estimated to be as follows:
|
|
(In thousands)
|
|
Remainder of 2020
|
|
$
|
22,408
|
|
2021
|
|
|
73,412
|
|
2022
|
|
|
36,712
|
|
2023
|
|
|
13,509
|
|
2024
|
|
|
1,742
|
|
Thereafter
|
|
|
700
|
|
Total
|
|
$
|
148,483
|
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
NOTE 5—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Marketable Debt Securities
At September 30, 2020, 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
|
|
$
|
349,949
|
|
|
$
|
5
|
|
|
$
|
(1
|
)
|
|
$
|
349,953
|
|
Total available-for-sale marketable debt securities
|
|
$
|
349,949
|
|
|
$
|
5
|
|
|
$
|
(1
|
)
|
|
$
|
349,953
|
|
The Company did not hold any marketable
debt securities at December 31, 2019.
The contractual maturities of debt securities
classified as current available-for-sale at September 30, 2020 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,
2020.
Long-term Investments
Long-term investments consists of:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(In thousands)
|
|
Investment in MGM Resorts International ("MGM")
|
|
$
|
1,283,987
|
|
|
$
|
—
|
|
Equity securities without readily determinable fair values
|
|
|
296,491
|
|
|
|
347,975
|
|
Total long-term investments
|
|
$
|
1,580,478
|
|
|
$
|
347,975
|
|
Investment in MGM
During the three and nine months ended
September 30, 2020, the Company purchased 35.6 million and 59.0 million shares of MGM, respectively. The fair value
of the investment in MGM is remeasured each reporting period and any unrealized gains or losses are included in "Other income
(expense), net" in the accompanying statement of operations. For the three and nine months ended September 30, 2020,
the Company recognized an unrealized gain of $289.1 million and $264.4 million, respectively, on its investment in MGM.
Equity Securities without Readily
Determinable Fair Values
During the first quarter of 2020, the
Company recorded unrealized impairments of $51.5 million related to certain equity securities without readily determinable fair
values due to the impact of COVID-19. 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 statement of operations.
The following table
presents a summary of 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, 2020 and 2019.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Upward adjustments (gross unrealized gains)
|
|
$
|
—
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
53
|
|
Downward adjustments including impairment (gross unrealized losses)
|
|
|
—
|
|
|
|
(543
|
)
|
|
|
(51,484
|
)
|
|
|
(1,193
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
(490
|
)
|
|
$
|
(51,484
|
)
|
|
$
|
(1,140
|
)
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The cumulative upward
and downward adjustments (including impairments) to the carrying value of equity securities without readily determinable fair
values held at September 30, 2020 were $19.7 million and $49.5 million, respectively.
Realized and unrealized
gains and losses for the Company's marketable equity securities and investments without readily determinable fair values for the
three and nine months ended September 30, 2020 and 2019 are as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Realized gains (losses), net, for equity securities sold
|
|
$
|
2,976
|
|
|
$
|
(8
|
)
|
|
$
|
488
|
|
|
$
|
2,006
|
|
Unrealized gains (losses), net, on equity securities held
|
|
|
289,097
|
|
|
|
(5,066
|
)
|
|
|
215,394
|
|
|
|
24,114
|
|
Total gains (losses), net recognized in other income (expense), net
|
|
$
|
292,073
|
|
|
$
|
(5,074
|
)
|
|
$
|
215,882
|
|
|
$
|
26,120
|
|
Fair Value Measurements
The Company categorizes its financial
instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability.
The three levels of the fair value hierarchy are:
|
•
|
Level 1: Observable inputs obtained from independent
sources, such as quoted market prices for identical assets and liabilities in active
markets.
|
|
•
|
Level 2: Other inputs, which are observable directly
or indirectly, such as quoted market prices for similar assets or liabilities in active
markets, quoted market prices for identical or similar assets or liabilities in markets
that are not active and inputs that are derived principally from or corroborated by observable
market data. The fair values of the Company's Level 2 financial assets are primarily
obtained from observable market prices for identical underlying securities that may not
be actively traded. Certain of these securities may have different market prices from
multiple market data sources, in which case an average market price is used.
|
|
•
|
Level 3: Unobservable inputs for which there is little
or no market data and require the Company to develop its own assumptions, based on the
best information available in the circumstances, about the assumptions market participants
would use in pricing the assets or liabilities.
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The following tables present the Company's
financial instruments that are measured at fair value on a recurring basis:
|
|
September 30, 2020
|
|
|
|
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
|
|
$
|
1,717,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,717,738
|
|
Treasury discount notes
|
|
|
—
|
|
|
|
1,349,926
|
|
|
|
—
|
|
|
|
1,349,926
|
|
Time deposits
|
|
|
—
|
|
|
|
42,988
|
|
|
|
—
|
|
|
|
42,988
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury discount notes
|
|
|
—
|
|
|
|
349,953
|
|
|
|
—
|
|
|
|
349,953
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in MGM
|
|
|
1,283,987
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,283,987
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
4,748
|
|
|
|
4,748
|
|
Total
|
|
$
|
3,001,725
|
|
|
$
|
1,742,867
|
|
|
$
|
4,748
|
|
|
$
|
4,749,340
|
|
|
|
December 31, 2019
|
|
|
|
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
|
|
$
|
699,589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
699,589
|
|
Time deposits
|
|
|
—
|
|
|
|
23,075
|
|
|
|
—
|
|
|
|
23,075
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
8,495
|
|
|
|
8,495
|
|
Total
|
|
$
|
699,589
|
|
|
$
|
23,075
|
|
|
$
|
8,495
|
|
|
$
|
731,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration arrangement
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,918
|
)
|
|
$
|
(6,918
|
)
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The following tables present the changes
in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs
(Level 3):
|
|
Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Warrant
|
|
|
Warrant
|
|
|
Contingent
Consideration
Arrangement
|
|
|
|
(In thousands)
|
|
Balance at July 1
|
|
$
|
7,079
|
|
|
$
|
—
|
|
|
$
|
(29,803
|
)
|
Fair value at date of acquisition
|
|
|
—
|
|
|
|
17,518
|
|
|
|
—
|
|
Total net (losses) gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments
|
|
|
(2,331
|
)
|
|
|
(8,689
|
)
|
|
|
16,139
|
|
Balance at September 30
|
|
$
|
4,748
|
|
|
$
|
8,829
|
|
|
$
|
(13,664
|
)
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Warrant
|
|
|
Contingent
Consideration
Arrangements
|
|
|
Warrant
|
|
|
Contingent
Consideration
Arrangement
|
|
|
|
(In thousands)
|
|
Balance at January 1
|
|
$
|
8,495
|
|
|
$
|
(6,918
|
)
|
|
$
|
—
|
|
|
$
|
(26,657
|
)
|
Fair value at date of acquisition
|
|
|
—
|
|
|
|
(1,000
|
)
|
|
|
17,518
|
|
|
|
—
|
|
Total net (losses) gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments
|
|
|
(3,747
|
)
|
|
|
6,918
|
|
|
|
(8,689
|
)
|
|
|
12,993
|
|
Settlements
|
|
|
—
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30
|
|
$
|
4,748
|
|
|
$
|
—
|
|
|
$
|
8,829
|
|
|
$
|
(13,664
|
)
|
Warrant
As part of the Company's investment in
Turo, a peer-to-peer car sharing marketplace, the Company received a warrant that is net settleable at the Company's option and
is recorded at fair value each reporting period with any change included in "Other income (expense), net" in the accompanying
statement of operations. The warrant is measured using significant unobservable inputs and is classified in the fair value hierarchy
table as Level 3. The warrant is included in "Other non-current assets" in the accompanying balance sheet.
Contingent Consideration Arrangements
At September 30, 2020, the Company
has one outstanding contingent consideration arrangement related to a business acquisition. The maximum contingent payments related
to this arrangement for periods subsequent to December 31, 2019 total $30.0 million. The potential earnout payment for the
year ended December 31, 2019 was $15.0 million; however, the financial performance threshold that would have triggered that
payment was not achieved. At September 30, 2020, the Company does not expect to make any payments related to this contingent
consideration arrangement. In connection with the Care.com acquisition on February 11, 2020, the Company assumed a contingent
consideration arrangement liability of $1.0 million, which was subsequently paid and settled during the first quarter of 2020.
Generally, our contingent consideration
arrangements are based upon financial performance and/or operating metric targets and 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, if the arrangements are initially long-term in nature, applying a discount rate that appropriately captures the
risks associated with the obligations to determine the net amount reflected in the financial statements.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The fair value of contingent consideration
arrangements is sensitive to changes in the expected achievement of the applicable targets 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
statement of operations. There is no contingent consideration liability outstanding at September 30, 2020. The contingent
consideration arrangement liability at December 31, 2019 includes a non-current portion of $6.9 million and, is included
in “Other long-term liabilities” in the accompanying balance sheet.
Assets measured at fair value on
a nonrecurring basis
The Company's non-financial assets, such
as goodwill, intangible assets, ROU assets and building, capitalized software, leasehold improvements and equipment, are adjusted
to fair value only when an impairment is recognized. The Company's financial assets, comprising equity securities without readily
determinable fair values, are adjusted to fair value when observable price changes are identified or an impairment is recognized.
Such fair value measurements are based predominantly on Level 3 inputs. See "Note 4—Goodwill and Intangible Assets" for a detailed description of the Desktop goodwill and indefinite-lived intangible asset impairments recorded
during the first and third quarter of 2020.
Financial instruments measured at
fair value only for disclosure purposes
The following table presents the carrying
value and the fair value of financial instruments measured at fair value only for disclosure purposes:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
|
(In thousands)
|
|
Notes receivable—related party, current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55,251
|
|
|
$
|
55,251
|
|
Current portion of long-term debt
|
|
$
|
(13,750
|
)
|
|
$
|
(13,750
|
)
|
|
$
|
(13,750
|
)
|
|
$
|
(13,681
|
)
|
Long-term debt, net(a)
|
|
$
|
(715,408
|
)
|
|
$
|
(715,288
|
)
|
|
$
|
(231,946
|
)
|
|
$
|
(232,581
|
)
|
|
(a)
|
At September 30,
2020 and December 31, 2019, the carrying value of long-term debt, net includes unamortized
debt issuance costs of $8.0 million and $1.8 million, respectively.
|
At September 30, 2020 and December 31,
2019, 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.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
NOTE 6—LONG-TERM DEBT
Long-term debt consists of:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(In thousands)
|
|
3.875% ANGI Group Senior Notes due August 15, 2028 ("ANGI Group Senior Notes"); interest payable each February 15 and August 15, commencing February 15, 2021
|
|
$
|
500,000
|
|
|
$
|
—
|
|
ANGI Group Term Loan due November 5, 2023 ("ANGI Group Term Loan")
|
|
|
237,188
|
|
|
|
247,500
|
|
Total long-term debt
|
|
|
737,188
|
|
|
|
247,500
|
|
Less: current portion of ANGI Group Term Loan
|
|
|
13,750
|
|
|
|
13,750
|
|
Less: unamortized debt issuance costs
|
|
|
8,030
|
|
|
|
1,804
|
|
Total long-term debt, net
|
|
$
|
715,408
|
|
|
$
|
231,946
|
|
ANGI Group Senior Notes
On August 20, 2020, ANGI Group, LLC
("ANGI Group"), a direct wholly-owned subsidiary of ANGI, issued $500 million in aggregate principal amount of
the ANGI Group Senior Notes, the proceeds of which are intended for general corporate purposes, including potential future acquisitions
and return of capital. At any time prior to August 15, 2023, these notes may be redeemed at a redemption price equal to the
sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be
redeemed at the redemption prices set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
Year
|
|
|
Percentage
|
|
2023
|
|
|
|
101.938
|
%
|
2024
|
|
|
|
100.969
|
%
|
2025 and thereafter
|
|
|
|
100.000
|
%
|
The indenture governing the ANGI Group
Senior Notes contains a covenant that would limit ANGI Group’s ability to incur liens for borrowed money in the event a
default has occurred or the ANGI Group’s secured leverage ratio (as defined in the indenture) exceeds 3.75 to 1.0. At September 30,
2020, there were no limitations pursuant thereto.
ANGI Group Term Loan and ANGI Group
Revolving Facility
ANGI was a party to a credit agreement
that terminates on November 5, 2021. On August 12, 2020, ANGI Group entered into a joinder agreement with ANGI, the
other subsidiaries of ANGI that are party to the credit agreement, and each of the other loan parties to the credit agreement,
pursuant to which, ANGI Group became the successor borrower under the credit agreement and ANGI Homeservices Inc.'s obligations
thereunder were terminated. The credit agreement governs the ANGI Group Term Loan and revolving credit facility (the "ANGI
Group Revolving Facility"). In addition, on August 12, 2020, the definition of "Permitted Unsecured Ratio Debt"
in the credit agreement was amended to remove the requirement that guarantees of certain indebtedness of the borrower be subordinated
to the guarantees under the credit agreement.
The outstanding balance of the ANGI Group
Term Loan was $237.2 million and $247.5 million at September 30, 2020 and December 31, 2019, respectively. There are
quarterly principal payments of $3.4 million through December 31, 2021, $6.9 million for the one-year period ending December 31,
2022 and $10.3 million through maturity of the loan when the final amount of $161.6 million is due. Additionally, interest payments
are due at least quarterly through the term of the loan. At both September 30, 2020 and December 31, 2019, the ANGI
Group Term Loan bore interest at LIBOR plus 1.50%, or 1.66% and 3.25%, respectively. The spread over LIBOR is subject to change
in future periods based on ANGI Group's consolidated net leverage ratio.
The ANGI Group Term Loan requires ANGI
Group to maintain a consolidated net leverage ratio of not more than 4.5 to 1.0 and a minimum interest coverage ratio of not less
than 2.0 to 1.0 (in each case as defined in the ANGI Group credit agreement). The ANGI Group credit agreement also contains covenants
that would limit ANGI Group's ability to pay dividends or make distributions in the event a default has occurred or ANGI Group's
consolidated net leverage ratio exceeds 4.25 to 1.0. At September 30, 2020, there were no limitations pursuant thereto.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
(Unaudited)
The $250 million ANGI Group Revolving
Facility expires on November 5, 2023. At September 30, 2020 and December 31, 2019, there were no outstanding borrowings
under the ANGI Group Revolving Facility. The annual commitment fee on undrawn funds is based on ANGI Group's consolidated net
leverage ratio most recently reported and was 25 basis points at both September 30, 2020 and December 31, 2019. Any
future borrowings under the ANGI Group Revolving Facility would bear interest, at ANGI Group's option, at either a base rate or
LIBOR, in each case plus an applicable margin, which is based on ANGI Group's consolidated net leverage ratio. The financial and
other covenants are the same as those for the ANGI Group Term Loan.
The ANGI Group Senior Notes, ANGI Group
Term Loan and ANGI Group Revolving Facility are guaranteed by certain of ANGI Group's wholly-owned material domestic subsidiaries
and ANGI Group’s obligations under the ANGI Group Term Loan and the ANGI Group Revolving Facility are secured by substantially
all assets of ANGI Group and the guarantors, subject to certain exceptions. The ANGI Group Term Loan and outstanding borrowings,
if any, under the ANGI Group Revolving Facility rank equally with each other, and have priority over the ANGI Group Senior Notes
to the extent of the value of the assets securing the borrowings under the credit agreement.
IAC Group Credit Facility
The IAC Group, LLC ("IAC Group")
$250 million revolving credit facility (the "IAC Group Credit Facility"), which was scheduled to expire on November 5,
2023, was terminated effective October 2, 2020. At September 30, 2020 and December 31, 2019, there were no outstanding
borrowings under the IAC Group Credit Facility.
Long-term Debt Maturities
Long-term debt maturities as of September 30,
2020 are summarized in the table below:
|
|
|
(In thousands)
|
|
Remainder of 2020
|
|
|
$
|
3,438
|
|
2021
|
|
|
|
13,750
|
|
2022
|
|
|
|
27,500
|
|
2023
|
|
|
|
192,500
|
|
2028
|
|
|
|
500,000
|
|
Total
|
|
|
|
737,188
|
|
Less: current portion of ANGI Group Term Loan
|
|
|
|
13,750
|
|
Less: unamortized debt issuance costs
|
|
|
|
8,030
|
|
Total long-term debt, net
|
|
|
$
|
715,408
|
|
NOTE 7—SHAREHOLDERS' EQUITY