IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands, except par value amounts) |
ASSETS | | | |
Cash and cash equivalents | $ | 2,118,730 | | | $ | 3,366,176 | |
Marketable securities | 19,788 | | | 224,979 | |
Accounts receivable, net of allowance and reserves of $39,719 and $29,240 , respectively | 693,208 | | | 257,668 | |
Other current assets | 242,188 | | | 140,022 | |
Current assets of discontinued operations | — | | | 130,477 | |
Total current assets | 3,073,914 | | | 4,119,322 | |
| | | |
Buildings, capitalized software, leasehold improvements, equipment and land, net | 570,525 | | | 274,930 | |
Goodwill | 3,226,610 | | | 1,660,102 | |
Intangible assets, net of accumulated amortization | 1,414,892 | | | 394,986 | |
Investment in MGM Resorts International | 2,649,442 | | | 1,860,158 | |
Long-term investments | 327,838 | | | 297,643 | |
Other non-current assets | 1,037,067 | | | 288,021 | |
Non-current assets of discontinued operations | — | | | 266,547 | |
TOTAL ASSETS | $ | 12,300,288 | | | $ | 9,161,709 | |
| | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
LIABILITIES: | | | |
Current portion of long-term debt | $ | 30,000 | | | $ | — | |
Accounts payable, trade | 203,173 | | | 88,849 | |
Deferred revenue | 165,451 | | | 137,658 | |
Accrued expenses and other current liabilities | 980,574 | | | 340,406 | |
Current liabilities of discontinued operations | — | | | 183,988 | |
Total current liabilities | 1,379,198 | | | 750,901 | |
| | | |
Long-term debt, net | 2,046,237 | | | 712,277 | |
| | | |
Deferred income taxes | 385,890 | | | 78,789 | |
Other long-term liabilities | 721,262 | | | 233,850 | |
Non-current liabilities of discontinued operations | — | | | 2,972 | |
| | | |
Redeemable noncontrolling interests | 18,741 | | | 231,992 | |
| | | |
Commitments and contingencies | | | |
| | | |
SHAREHOLDERS' EQUITY: | | | |
Common Stock, $0.0001 par value; authorized 1,600,000 shares; 83,922 issued and outstanding at December 31, 2021 | 8 | | | — | |
Class B common stock, $0.0001 par value; authorized 400,000 shares; 5,789 issued and outstanding at December 31, 2021 | 1 | | | — | |
Common Stock $0.001 par value; authorized 1,600,000 shares; 82,976 shares issued and outstanding at December 31, 2020 | — | | | 83 | |
Class B common stock $0.001 par value; authorized 400,000 shares; 5,789 shares issued and outstanding at December 31, 2020 | — | | | 6 | |
Additional paid-in capital | 6,265,669 | | | 5,909,614 | |
Retained earnings | 905,151 | | | 694,042 | |
Accumulated other comprehensive income (loss) | 4,397 | | | (6,170) | |
Total IAC shareholders' equity | 7,175,226 | | | 6,597,575 | |
Noncontrolling interests | 573,734 | | | 553,353 | |
Total shareholders' equity | 7,748,960 | | | 7,150,928 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 12,300,288 | | | $ | 9,161,709 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands, except per share data) |
Revenue | $ | 3,699,627 | | | $ | 2,764,536 | | | $ | 2,509,980 | |
Operating costs and expenses: | | | | | |
Cost of revenue (exclusive of depreciation shown separately below) | 1,306,972 | | | 750,686 | | | 547,660 | |
Selling and marketing expense | 1,362,300 | | | 1,165,456 | | | 1,117,885 | |
General and administrative expense | 797,448 | | | 745,235 | | | 573,057 | |
Product development expense | 220,120 | | | 180,014 | | | 132,640 | |
Depreciation | 75,015 | | | 68,823 | | | 55,471 | |
Amortization of intangibles | 74,839 | | | 126,839 | | | 74,215 | |
Goodwill impairment | — | | | 265,146 | | | 3,318 | |
Total operating costs and expenses | 3,836,694 | | | 3,302,199 | | | 2,504,246 | |
Operating (loss) income | (137,067) | | | (537,663) | | | 5,734 | |
Interest expense | (34,264) | | | (16,166) | | | (11,904) | |
Unrealized gain on investment in MGM Resorts International | 789,283 | | | 840,550 | | | — | |
Other income (expense), net | 111,854 | | | (42,561) | | | 40,487 | |
Earnings from continuing operations before income taxes | 729,806 | | | 244,160 | | | 34,317 | |
Income tax (provision) benefit | (138,990) | | | 45,707 | | | 47,349 | |
Net earnings from continuing operations | 590,816 | | | 289,867 | | | 81,666 | |
Loss from discontinued operations, net of tax | (1,831) | | | (21,281) | | | (49,483) | |
Net earnings | 588,985 | | | 268,586 | | | 32,183 | |
Net loss (earnings) attributable to noncontrolling interests | 8,562 | | | 1,140 | | | (9,288) | |
Net earnings attributable to IAC shareholders | $ | 597,547 | | | $ | 269,726 | | | $ | 22,895 | |
| | | | | |
Per share information from continuing operations: | | | | | |
Basic earnings per share | $ | 6.72 | | | $ | 3.40 | | | $ | 0.84 | |
Diluted earnings per share | $ | 6.33 | | | $ | 3.20 | | | $ | 0.84 | |
| | | | | |
Per share information attributable to IAC Common Stock and Class B common stock shareholders: |
Basic earnings per share | $ | 6.70 | | | $ | 3.16 | | | $ | 0.27 | |
Diluted earnings per share | $ | 6.31 | | | $ | 2.97 | | | $ | 0.27 | |
| | | | | |
Stock-based compensation expense by function: | | | | | |
Cost of revenue | $ | 78 | | | $ | 118 | | | $ | 61 | |
Selling and marketing expense | 5,009 | | | 5,265 | | | 4,642 | |
General and administrative expense | 67,664 | | | 177,451 | | | 116,594 | |
Product development expense | 6,736 | | | 6,161 | | | 8,931 | |
Total stock-based compensation expense | $ | 79,487 | | | $ | 188,995 | | | $ | 130,228 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Net earnings | $ | 588,985 | | | $ | 268,586 | | | $ | 32,183 | |
Other comprehensive income, net of income taxes: | | | | | |
Change in foreign currency translation adjustment | 10,466 | | | 7,810 | | | 311 | |
Change in unrealized gains and losses on available-for-sale marketable debt securities | (2) | | | 2 | | | (3) | |
Total other comprehensive income, net of income taxes | 10,464 | | | 7,812 | | | 308 | |
Comprehensive income, net of income taxes | 599,449 | | | 276,398 | | | 32,491 | |
Components of comprehensive loss (income) attributable to noncontrolling interests: | | | | | |
Net loss (earnings) attributable to noncontrolling interests | 8,562 | | | 1,140 | | | (9,288) | |
Change in foreign currency translation adjustment attributable to noncontrolling interests | 93 | | | (1,718) | | | 26 | |
Change in unrealized gains and losses of available-for-sale marketable debt securities attributable to noncontrolling interests | — | | | — | | | 1 | |
Comprehensive loss (income) attributable to noncontrolling interests | 8,655 | | | (578) | | | (9,261) | |
Comprehensive income attributable to IAC shareholders | $ | 608,104 | | | $ | 275,820 | | | $ | 23,230 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Noncontrolling Interests | | | Common Stock, $0.0001 par value | | Class B Common Stock, $0.0001 par value | | Common Stock, $0.001 par value | | Class B Common Stock, $0.001 par value | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | $ | | Shares | | $ | | Shares | | $ | | Shares | | $ | | Shares | | | | | |
| | | | (In thousands) |
Balance at December 31, 2020 | $ | 231,992 | | | | $ | — | | | — | | | $ | — | | | — | | | $ | 83 | | | 82,976 | | | $ | 6 | | | 5,789 | | | $ | 5,909,614 | | | $ | 694,042 | | | $ | (6,170) | | | $ | 6,597,575 | | | $ | 553,353 | | | $ | 7,150,928 | |
Net earnings (loss) | 1,732 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 597,547 | | | — | | | 597,547 | | | (10,294) | | | 587,253 | |
Other comprehensive income (loss), net of income taxes | 515 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 10,519 | | | 10,519 | | | (608) | | | 9,911 | |
Stock-based compensation expense | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 59,283 | | | — | | | — | | | 59,283 | | | 33,057 | | | 92,340 | |
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | 564 | | | — | | | — | | | — | | | 382 | | | — | | | — | | | (98,691) | | | — | | | — | | | (98,691) | | | — | | | (98,691) | |
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (59,619) | | | — | | | 10 | | | (59,609) | | | (1,614) | | | (61,223) | |
Purchase of Angi Inc. treasury stock | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (35,959) | | | — | | | — | | | (35,959) | | | — | | | (35,959) | |
Issuance of Vimeo common stock and creation of noncontrolling interests, net of fees | 40,785 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 258,965 | | | — | | | — | | | 258,965 | | | — | | | 258,965 | |
Distribution to and purchase of noncontrolling interests | (29,769) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (570) | | | (570) | |
Adjustment of noncontrolling interests to fair value | 777,688 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (777,688) | | | — | | | — | | | (777,688) | | | — | | | (777,688) | |
Recapitalization of IAC upon Vimeo spin-off | — | | | | 8 | | | 83,358 | | | 1 | | | 5,789 | | | (83) | | | (83,358) | | | (6) | | | (5,789) | | | 80 | | | — | | | — | | | — | | | — | | | — | |
Spin-off of IAC's investment in Vimeo | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (386,438) | | | 38 | | | (386,438) | | | — | | | (386,438) | |
Elimination of Vimeo noncontrolling interests | (1,002,324) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,002,324 | | | — | | | — | | | 1,002,324 | | | — | | | 1,002,324 | |
Change in the MTCH Separation tax account distribution | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 7,640 | | | — | | | — | | | 7,640 | | | — | | | 7,640 | |
Other | (1,878) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (242) | | | — | | | — | | | (242) | | | 410 | | | 168 | |
Balance at December 31, 2021 | $ | 18,741 | | | | $ | 8 | | | 83,922 | | | $ | 1 | | | 5,789 | | | $ | — | | | — | | | $ | — | | | — | | | $ | 6,265,669 | | | $ | 905,151 | | | $ | 4,397 | | | $ | 7,175,226 | | | $ | 573,734 | | | $ | 7,748,960 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' AND COMBINED STATEMENT OF PARENT'S EQUITY
Years Ended December 31, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Noncontrolling Interests | | | Common Stock, $0.001 par value | | Class B Common Stock, $0.001 par value | | Additional Paid-in Capital | | Retained Earnings | | Invested Capital | | Accumulated Other Comprehensive (Loss) Income | | Total IAC Shareholders' Equity and Invested Capital | | Noncontrolling Interests | | Total Parent's / Shareholders' Equity |
| | | $ | | Shares | | $ | | Shares | | |
| | | | (In thousands) |
Balance at December 31, 2018 | $ | 65,687 | | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | 2,296,583 | | | $ | (12,541) | | | $ | 2,284,042 | | | $ | 400,358 | | | $ | 2,684,400 | |
Net earnings | 3,168 | | | | — | | | — | | | — | | | — | | | — | | | — | | | 22,895 | | | — | | | 22,895 | | | 6,120 | | | 29,015 | |
Other comprehensive income (loss), net of income taxes | 39 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 335 | | | 335 | | | (66) | | | 269 | |
Stock-based compensation expense | 148 | | | | — | | | — | | | — | | | — | | | — | | | — | | | 65,893 | | | — | | | 65,893 | | | 65,815 | | | 131,708 | |
Distributions to and purchases of noncontrolling interests | (40,432) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Adjustment of noncontrolling interests to fair value | 11,554 | | | | — | | | — | | | — | | | — | | | — | | | — | | | (11,554) | | | — | | | (11,554) | | | — | | | (11,554) | |
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | (32,596) | | | (20) | | | (32,616) | | | (2,106) | | | (34,722) | |
Purchase of Angi Inc. treasury stock | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | (57,949) | | | — | | | (57,949) | | | — | | | (57,949) | |
Noncontrolling interests created in acquisitions | 3,739 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net increase in Old IAC's investment in the Company | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 263,979 | | | — | | | 263,979 | | | — | | | 263,979 | |
Other | (85) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at December 31, 2019 | $ | 43,818 | | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | 2,547,251 | | | $ | (12,226) | | | $ | 2,535,025 | | | $ | 470,121 | | | $ | 3,005,146 | |
Net (loss) earnings | (1,434) | | | | — | | | — | | | — | | | — | | | — | | | 694,042 | | | (424,316) | | | — | | | 269,726 | | | 294 | | | 270,020 | |
Other comprehensive income, net of income taxes | 439 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,094 | | | 6,094 | | | 1,279 | | | 7,373 | |
Stock-based compensation expense | 15 | | | | — | | | — | | | — | | | — | | | 40,870 | | | — | | | 72,891 | | | — | | | 113,761 | | | 85,267 | | | 199,028 | |
Distribution to and purchase of noncontrolling interests | (3,515) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,115) | | | (1,115) | |
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | (62,169) | | | — | | | 1,248 | | | (38) | | | (60,959) | | | (3,183) | | | (64,142) | |
Purchase of Angi Inc. treasury stock | — | | | | — | | | — | | | — | | | — | | | (9,273) | | | — | | | (54,859) | | | — | | | (64,132) | | | — | | | (64,132) | |
Proceeds from the sale of Old IAC Class M common stock from New Match | — | | | | — | | | — | | | — | | | — | | | 1,408,298 | | | — | | | — | | | — | | | 1,408,298 | | | — | | | 1,408,298 | |
Net increase in Old IAC's investment in the Company prior to the MTCH Separation | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,685,995 | | | — | | | 1,685,995 | | | — | | | 1,685,995 | |
Cash merger consideration paid by Old IAC | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | 837,913 | | | — | | | 837,913 | | | — | | | 837,913 | |
Capitalization as a result of the MTCH Separation | — | | | | 79 | | | 79,343 | | | 6 | | | 5,789 | | | 4,661,231 | | | — | | | (4,661,316) | | | — | | | — | | | — | | | — | |
Noncontrolling interest created in an acquisition | 1,121 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Vimeo common stock and creation of noncontrolling interest, net of fees | 8,299 | | | | — | | | — | | | — | | | — | | | 141,301 | | | — | | | — | | | — | | | 141,301 | | | — | | | 141,301 | |
Adjustment of noncontrolling interests to fair value | 183,315 | | | | — | | | — | | | — | | | — | | | (178,508) | | | — | | | (4,807) | | | — | | | (183,315) | | | — | | | (183,315) | |
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | | | | 1 | | | 633 | | | — | | | — | | | (83,383) | | | — | | | — | | | — | | | (83,382) | | | — | | | (83,382) | |
Issuance of restricted stock | — | | | | 3 | | | 3,000 | | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | | | — | | | — | |
Adjustment to the capitalization of tax accounts as a result of the MTCH Separation | — | | | | — | | | — | | | — | | | — | | | (8,259) | | | — | | | — | | | — | | | (8,259) | | | — | | | (8,259) | |
Other | (66) | | | | — | | | — | | | — | | | — | | | (491) | | | — | | | — | | | — | | | (491) | | | 690 | | | 199 | |
Balance at December 31, 2020 | $ | 231,992 | | | | $ | 83 | | | 82,976 | | | $ | 6 | | | 5,789 | | | $ | 5,909,614 | | | $ | 694,042 | | | $ | — | | | $ | (6,170) | | | $ | 6,597,575 | | | $ | 553,353 | | | $ | 7,150,928 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Cash flows from operating activities attributable to continuing operations: | | | | | |
Net earnings | $ | 588,985 | | | $ | 268,586 | | | $ | 32,183 | |
Less: Loss from discontinued operations, net of tax | (1,831) | | | (21,281) | | | (49,483) | |
Net earnings attributable to continuing operations | 590,816 | | | 289,867 | | | 81,666 | |
Adjustments to reconcile net earnings to net cash provided by operating activities attributable to continuing operations: | | | | | |
Stock-based compensation expense | 79,487 | | | 188,995 | | | 130,228 | |
Amortization of intangibles | 74,839 | | | 126,839 | | | 74,215 | |
Depreciation | 75,015 | | | 68,823 | | | 55,471 | |
Provision for credit losses | 89,893 | | | 78,931 | | | 64,478 | |
Goodwill impairment | — | | | 265,146 | | | 3,318 | |
Deferred income taxes | 133,377 | | | (18,356) | | | (49,374) | |
Unrealized gain on investment in MGM Resorts International | (789,283) | | | (840,550) | | | — | |
(Gains) losses on investments in equity securities, net | (40,626) | | | 41,112 | | | (39,388) | |
Unrealized (increase) decrease in the estimated fair value of a warrant | (104,018) | | | 3,219 | | | 9,123 | |
Non-cash lease expense (including right-of-use asset impairments) | 35,737 | | | 30,026 | | | 21,258 | |
Pension and postretirement benefit expense | 18,212 | | | — | | | — | |
Other adjustments, net | 50,593 | | | 16,113 | | | (7,735) | |
Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
Accounts receivable | (156,971) | | | (131,703) | | | (72,109) | |
Other assets | 4,185 | | | (24,762) | | | (6,723) | |
Operating lease liabilities | (30,995) | | | (29,841) | | | (22,421) | |
Accounts payable and other liabilities | 82,849 | | | 35,960 | | | 22,473 | |
Income taxes payable and receivable | (2,506) | | | (11,580) | | | 4 | |
Deferred revenue | 8,296 | | | 25,140 | | | 10,851 | |
Net cash provided by operating activities attributable to continuing operations | 118,900 | | | 113,379 | | | 275,335 | |
Cash flows from investing activities attributable to continuing operations: | | | | | |
Acquisitions, net of cash acquired | (2,699,643) | | | (685,216) | | | (28,439) | |
Capital expenditures | (90,210) | | | (60,726) | | | (95,097) | |
Proceeds from maturities of marketable debt securities | 225,000 | | | 475,000 | | | 25,000 | |
Purchases of marketable debt securities | — | | | (649,828) | | | — | |
Cash distribution related to the spin-off of IAC's investment in Vimeo | (333,184) | | | — | | | — | |
Net proceeds from the sale of businesses and investments | 16,451 | | | 26,055 | | | 166,440 | |
Purchases of investment in MGM Resorts International | — | | | (1,019,608) | | | — | |
Purchases of investments | (24,290) | | | (1,152) | | | (253,663) | |
Decrease (increase) in notes receivable - related party | — | | | 54,828 | | | (54,828) | |
Other, net | (1,627) | | | (11,536) | | | (9,086) | |
Net cash used in investing activities attributable to continuing operations | (2,907,503) | | | (1,872,183) | | | (249,673) | |
Cash flows from financing activities attributable to continuing operations: | | | | | |
Proceeds from the issuance of Dotdash Meredith Term Loans | 1,600,000 | | | — | | | — | |
Proceeds from the issuance of ANGI Group Senior Notes | — | | | 500,000 | | | — | |
Principal payments on ANGI Group Term Loan | (220,000) | | | (27,500) | | | (13,750) | |
Principal payments on related-party debt | — | | | — | | | (2,500) | |
Debt issuance costs | (23,548) | | | (6,484) | | | — | |
Purchase of Angi Inc. treasury stock | (35,403) | | | (63,674) | | | (56,905) | |
Proceeds from the exercise of IAC stock options | 1,496 | | | — | | | — | |
Proceeds from the exercise of Angi Inc. stock options | — | | | — | | | 573 | |
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards | (95,983) | | | (85,103) | | | — | |
Withholding taxes paid on behalf of Angi Inc. employees on net settled stock-based awards | (61,908) | | | (64,079) | | | (35,284) | |
Distributions to and purchases of noncontrolling interests | (30,339) | | | (4,280) | | | (24,595) | |
Cash merger consideration paid by Old IAC in connection with the MTCH Separation | — | | | 837,913 | | | — | |
Transfers from Old IAC for periods prior to the MTCH Separation | — | | | 1,706,479 | | | 263,281 | |
Proceeds from the sale of Old IAC Class M common stock | — | | | 1,408,298 | | | — | |
Other, net | (18,578) | | | 1,095 | | | (3,795) | |
Net cash provided by financing activities attributable to continuing operations | 1,115,737 | | | 4,202,665 | | | 127,025 | |
Total cash (used in) provided by continuing operations | (1,672,866) | | | 2,443,861 | | | 152,687 | |
Net cash provided by (used in) operating activities attributable to discontinued operations | 18,053 | | | 41,202 | | | (23,535) | |
Net cash provided by (used in) investing activities attributable to discontinued operations | 7,602 | | | 42 | | | (172,195) | |
Net cash provided by (used in) financing activities attributable to discontinued operations | 293,577 | | | 149,254 | | | (2,939) | |
Total cash provided by (used in) discontinued operations | 319,232 | | | 190,498 | | | (198,669) | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (1,612) | | | 2,019 | | | (122) | |
Net (decrease) increase in cash and cash equivalents and restricted cash | (1,355,246) | | | 2,636,378 | | | (46,104) | |
Cash and cash equivalents and restricted cash at beginning of period | 3,477,110 | | | 840,732 | | | 886,836 | |
Cash and cash equivalents and restricted cash at end of period | $ | 2,121,864 | | | $ | 3,477,110 | | | $ | 840,732 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
Company overview
IAC today is comprised of Dotdash Meredith, Angi Inc. and Care.com, as well as a number of other businesses ranging from early stage to established.
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).
Dotdash Meredith
On December 1, 2021, Dotdash Media Inc. (formerly known as About Inc., "Dotdash"), a wholly owned subsidiary of IAC/InterActiveCorp ("IAC"), completed the acquisition of Meredith Holdings Corporation ("Meredith"), which holds Meredith Corporation's national media business, which is comprised of its digital and magazine businesses, and its corporate operations. The parent of the combined entity is Dotdash Meredith, Inc. ("Dotdash Meredith"). See “Note 5—Business Combinations” for a description of the acquisition of Meredith. Dotdash Meredith is one of the largest digital and print publishers in America. From mobile to magazines, nearly 200 million people trust us to help them make decisions, take action, and find inspiration. Dotdash Meredith's over 40 iconic brands include PEOPLE, Better Homes & Gardens, Verywell, FOOD & WINE, The Spruce, Allrecipes, Byrdie, REAL SIMPLE, Investopedia, and Southern Living.
Dotdash Meredith has two operating segments: (i) Digital, which includes its digital and mobile operations; and (ii) Print, which includes its magazine and newsstand operations.
Angi Inc.
Angi Inc. formerly ANGI Homeservices Inc., is a publicly traded company that connects quality home service professionals with consumers across more than 500 different categories, from repairing and remodeling homes to cleaning and landscaping. During the year ended December 31, 2021, over 240,000 domestic service professionals actively sought consumer leads, completed jobs, or advertised work through Angi Inc. platforms. Additionally, consumers turned to at least one Angi business to find a service professional for approximately 33 million projects during the year ended December 31, 2021. At December 31, 2021, IAC’s economic interest and voting interest in Angi Inc. were 84.5% and 98.2%, respectively.
Angi Inc. has two operating segments: (i) North America (United States and Canada), which includes Angi Ads, Angi Leads and Angi Services; and (ii) Europe. The brands operates as follows: Angi Ads (formerly Angie's List) brand, Angi Leads (formerly HomeAdvisor) brand, and Angi Services (Handy and Angi Roofing) brand. Angi Ads provides service professionals the capability to engage with potential customers, including quoting, invoicing, and payment services. Angi Leads provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals. Angi Services allows consumers to browse and buy common household services at set prices, rather than requesting quotes from vetted service professionals, as well as instantly book related appointments online for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals. Consumers can request and pay for household services directly through the Angi platform and Angi fulfills the request through the use of independently established home services providers engaged in a trade, occupation and/or business that customarily provides such services. Additionally, Angi Services (including Angi Roofing) manages home improvement projects for consumers.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Search
The Search segment consists of Ask Media Group and the Desktop business. Ask Media Group is a collection of websites providing general search services and information. The Desktop business includes our direct-to-consumer downloadable desktop applications and our business-to-business partnership operations. Ask Media Group’s websites include, among others: Ask.com, a search site with a variety of fresh and contemporary content (celebrities, culture, entertainment, travel and general knowledge); Reference.com, a search and general knowledge content site that provides content across select vertical categories (history, business and finance and geography, among other verticals); Consumersearch.com, a search and content website that provides content designed to simplify the product research process; and Shopping.net, a vertical shopping search site, each of which contains a mix of search services and/or content targeted to various user or segment demographics.
Emerging & Other
Our Emerging & Other segment primarily includes:
•Care.com, a leading online destination for families to easily connect with caregivers for their children, aging parents, pets and homes and for a wide variety of caregivers to easily connect with families. Care.com's brands include Care For Business, Care.com offerings to enterprises, and HomePay. Care.com acquired Lifecare, a leading provider of family care benefits, on October 27, 2020;
•Mosaic Group, a leading developer and provider of global subscription mobile applications. Mosaic Group has a portfolio of some of the largest and most popular applications in the following verticals: Communications (RoboKiller, TapeACall), Language (iTranslate, Grammatica), Weather (Clime: NOAA Weather Radar Live, Weather Live), Business (PDF Hero, Scan Hero), Health (Daily Burn, Window - Intermittent Fasting), Lifestyle (Blossom, Pixomatic);
•Bluecrew, a technology driven staffing platform exclusively for flexible W-2 work;
•Vivian Health, a platform to efficiently connect healthcare professionals with job opportunities, which we acquired a controlling interest in on June 26, 2019;
•The Daily Beast, a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors;
•IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States and internationally; and
•Newco, IAC's incubator platform, which currently spans social gaming, telemedicine, home services, social networking and online recruiting.
Vimeo Spin-off:
On May 25, 2021, IAC completed the spin-off of its full stake in Vimeo to IAC shareholders (which we refer to as the “Spin-off”). Following the Spin-off, Vimeo, Inc. (formerly Vimeo Holdings, Inc. ("Vimeo")) became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within IAC's financial statements for all periods prior to May 25, 2021. See “Note 4—Discontinued Operations” for additional details.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
MTCH Separation:
On December 19, 2019, IAC/InterActiveCorp ("Old IAC") entered into a Transaction Agreement (as amended, 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 "MTCH Separation."
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Combination
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 to New IAC of all the entities that comprise the Company following the MTCH 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 historical 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 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 MTCH 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 MTCH 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 statement of parent's equity 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 the Company would have incurred as an independent, stand-alone company for the periods presented.
COVID-19 Update
The impact on the Company from the COVID-19 pandemic and the measures designed to contain its spread has been varied and volatile.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
As previously disclosed, the impact of COVID-19 on the businesses in IAC's Angi Inc. segment initially resulted in a decline in demand for service requests, driven primarily by decreases in demand in certain categories of jobs (particularly discretionary indoor projects). While these businesses experienced a rebound in service requests in the second half of 2020 and through early 2021, service requests started to decline in May 2021 compared to the comparable months of 2020 as a result of the surge in 2020 and due to impacts of the Angi Inc.'s brand integration initiative launched in March 2021. Moreover, many service professionals' businesses have been adversely impacted by labor and material constraints and many service professionals have and continue to have limited capacity to take on new business, which continues to negatively impact the ability of these businesses to monetize the slightly increased level of service requests. Although Angi Inc.'s ability to monetize service requests rebounded modestly in the second half of 2021, it still has not returned to levels it experienced pre-COVID-19. No assurances can be provided that Angi Inc. will continue to be able to improve monetization, or that service professionals' businesses and, as a consequence, its revenue and profitability will not continue to be adversely impacted in the future. The Search segment has experienced an increase in revenue in the year ended December 31, 2021 compared to the prior year due, in part, to lower advertising rates in 2020 due to the impact of COVID-19.
The volatile nature of our operating results in 2020 due to COVID-19 will impact the comparability of our year-over-year results of operations.
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 (included in the Search segment);
•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.
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. These impairments were due in part to the effects of COVID-19 on monetization. Refer to "Certain Risks and Concentrations—Services Agreement with Google" for additional information.
The extent to which developments related to the COVID-19 pandemic 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 continuing spread of COVID-19, the severity of resurgences of COVID-19 caused by variant strains of the virus, the effectiveness of vaccines and attitudes toward receiving them, materials and supply chain constraints, labor shortages, the scope of governmental and other restrictions on travel, discretionary services and other activity, and public reactions to these developments.
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 assets and liabilities. Actual results could differ from these estimates.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
On an ongoing basis, the Company evaluates its estimates, judgments and assumptions, 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 and the determination of revenue reserves; the determination of the customer relationship period for certain costs to obtain a contract with a customer; the carrying value of right-of-use assets ("ROU assets"); the useful lives and recoverability of buildings, capitalized software, leasehold improvements and equipment and definite-lived intangible assets; the fair value of assets acquired and liabilities assumed as a result of an acquisition and the allocation of purchase price to the identifiable intangible assets acquired during the measurement period; 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; pension and postretirement benefit expenses, including actuarial assumptions regarding discount rates, expected returns on plan assets and healthcare costs; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates, judgments and assumptions on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Accounting for Investments in Equity Securities
The Company's equity securities, other than those of its consolidated subsidiaries and those accounted for under the equity method, are accounted for at fair value or under the measurement alternative of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities, with any changes to fair value recognized in "Other income (expense), net" in the statement of operations 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; fair 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 in "Other income (expense), net" in the statement of operations. See "Note 7—Financial Instruments and Fair Value Measurements for additional information on the impairments of certain equity securities without readily determinable fair values recorded during the year ended December 31, 2020. The Company accounts for 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, using the equity method. At December 31, 2021 and 2020, the Company had one investment accounted for using the equity method, which is included in "Long-term investments" in the balance sheet.
Revenue Recognition
The Company accounts for a contract with a customer when it has approval and commitment from all parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised services or goods is transferred to our customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.
Transaction Price
The objective of determining the transaction price is to estimate the amount of consideration the Company is due in exchange for its services or goods, including amounts that are variable. The Company determines the total transaction price, including an estimate of any variable consideration, at contract inception and reassesses this estimate each reporting period.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.
For contracts that have an original duration of one year or less, the Company uses the practical expedient available under ASU No. 2014-09, Revenue from Contracts with Customers, applicable to such contracts and does not consider the time value of money.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers, which are directly observable or based on an estimate if not directly observable. For our multiple performance obligation arrangements that include functional intellectual property ("IP"), which comprise the downloadable apps and software of the Desktop business, the Company uses a residual approach to determine standalone selling prices for the functional IP.
Practical Expedients and Exemptions
As permitted under the practical expedient available under ASU No. 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is tied to sales-based or usage-based royalties, 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 it has the right to invoice for services performed.
Costs to Obtain a Contract with a Customer
The Company uses a portfolio approach to assess the accounting treatment of the incremental costs to obtain a contract with a customer. The Company recognizes an asset for these costs if we expect to recover those costs. To the extent that these costs are capitalized, the resultant asset is amortized on a systematic basis consistent with the pattern of the transfer of the services to which the asset relates. The Company has determined that certain costs, primarily commissions paid to employees pursuant to certain sales incentive programs and mobile app store fees, meet the requirements to be capitalized as a cost of obtaining a contract.
Commissions Paid to Third-Party Agent Sales of Magazine Subscriptions
Dotdash Meredith uses third-party agents to obtain certain subscribers. The agents are paid a commission, which can be as much as the subscription price charged to the subscriber. Dotdash Meredith subscriptions do not have substantive termination penalties; therefore, the contract term is determined on an issue-by-issue basis. Accordingly, these costs do not qualify for capitalization because there is no contract with a customer until a copy is served to a customer; therefore these costs are expensed when the publication is sent to the customer. Dotdash Meredith recognizes a liability to the extent the commission is refundable to the third-party agent. Dotdash Meredith expenses additional amounts paid to agents (such as per subscriber bounties) to acquire subscribers as incurred.
Commissions Paid to Employees Pursuant to Sales Incentive Programs
The Company has determined that commissions paid to employees pursuant to certain sales incentive programs meet the requirements to be capitalized as the incremental costs to obtain a contract with a customer. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. Capitalized commissions paid to employees pursuant to these sales incentive programs are amortized over the estimated customer relationship period. The Company calculates the anticipated customer relationship period as the average customer life, which is based on historical data.
For sales incentive programs where the anticipated customer relationship period is one year or less, the Company has elected the practical expedient to expense the commissions as incurred.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
App Store Fees
The Company pays fees to the Apple App Store and the Google Play Store for the distribution of our paid mobile apps. The Company capitalizes and amortizes mobile app store fees related to subscriptions over the term of the applicable subscription.
The following table presents the capitalized costs to obtain a contract with a customer for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| Sales Commissions | | | | App Store Fees | | Total | | Sales Commissions | | | | App Store Fees | | Total |
| (In thousands) |
Current | $ | 39,669 | | | | | $ | 9,023 | | | $ | 48,692 | | | $ | 50,319 | | | | | $ | 8,469 | | | $ | 58,788 | |
Non-current | 6,086 | | | | | — | | | 6,086 | | | 4,397 | | | | | — | | | 4,397 | |
Total | $ | 45,755 | | | | | $ | 9,023 | | | $ | 54,778 | | | $ | 54,716 | | | | | $ | 8,469 | | | $ | 63,185 | |
During the years ended December 31, 2021, 2020 and 2019, the Company recognized expense of $125.9 million, $101.3 million and $94.9 million, respectively, related to the amortization of capitalized costs to obtain a contract with a customer.
The current and non-current capitalized costs to obtain a contract with a customer are included in "Other current assets" and "Other non-current assets," respectively, in the balance sheet.
Dotdash Meredith
Dotdash Meredith revenue consists of digital and print revenue. Digital revenue consists principally of display advertising, performance marketing, and licensing and other revenue. Print revenue consists principally of subscription, newsstand, print advertising, and performance marketing revenue.
Digital
Display Advertising
Display advertising revenue is generated primarily through digital display advertisements sold directly by Dotdash Meredith's sales team and through programmatic advertising networks. Performance obligations are generally satisfied when the advertisement appears on the receiving platform. The price is determined by an agreed-upon pricing model such as CPC (cost per click), CPM (cost per 1,000 impressions), or flat fees. Revenue based on impression pricing is recognized when the advertisements are delivered consistent with the respective pricing model. Flat fee contracts are recognized ratably over the contract period using a time-elapsed output method. The customer is invoiced the agreed-upon price in the month following the month that the advertisements are delivered with normal trade terms.
As part of Dotdash Meredith's customary business practices, contracts may include a guaranteed number of impressions as well as sales incentives to its customers, including volume discounts, rebates, value added impressions, etc. For all such contracts that include these types of variable consideration, the Company estimates the variable consideration when determining the transaction price. Dotdash Meredith has sufficient historical data and has established processes to reliably estimate these variable components of the transaction price.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Performance Marketing
Performance marketing revenue includes commissions generated through affiliate commerce, affinity marketing, and performance marketing channels. Affiliate commerce and performance marketing commission revenue is generated when Dotdash Meredith refers users to commerce partner websites resulting in a purchase or transaction, or generated on a cost-per-click, cost-per-lead, or some other cost-per-action basis. Performance marketing and affiliate commerce partners are invoiced monthly. Affinity marketing programs partner with third parties to market and place magazine subscriptions online for both Dotdash Meredith and third-party publisher titles where Dotdash Meredith acts as an agent. Commissions are earned when a subscriber name has been provided to the publisher and any free trial period is completed. Dotdash Meredith net settles with the publishers monthly.
Licensing Revenue
Licensing revenue includes symbolic licenses, which include direct-to-retail product partnerships based on Dotdash Meredith's brands, and functional licenses, which consist of content licensing. Revenues from symbolic licenses are in the form of a royalty based on the sale or usage of the branded product, which is recognized over time when the sale or use occurs under the sales or usage-based royalty exception. Revenues from functional licenses are recognized at a point-in-time when Dotdash Meredith content (or advertising displayed alongside content) licensed to a third party is consumed by a customer. Generally, revenues are accrued based on estimated sales and adjusted as actual sales are reported by partners. These adjustments are typically recorded within three months of the initial estimates and have not been material. Any minimum guarantees are typically earned evenly over the year. Revenues from functional licenses are recognized at a point-in-time when access to the completed content is granted to the partner. There is no variable consideration related to functional licenses. Payment terms are contract specific and vary.
Print
Subscription Revenue
Dotdash Meredith subscriptions do not have substantive termination penalties; therefore, the contract term is determined on an issue-to-issue basis. Most of the Company’s subscription sales are prepaid at the time of order and may be canceled at any time for a refund of the pro rata portion of the initial subscription. Accordingly, amounts received from pre-paid subscriptions are recorded as a customer deposit liability rather than as deferred revenue. Each subscription sale is determined to be a distinct performance obligation that is satisfied when the publication is sent to the customer. Revenues from subscriptions are deferred as a customer deposit liability and recognized ratably as subscribers are served. Some subscription offers contain more than one title in a bundle and the transaction price is allocated to each distinct performance obligation based on a standalone-selling price basis. The transaction price is fixed upon establishment of the contract that contains the final terms of the sale, including description, quantity, and price of each subscription purchased.
Newsstand Revenue
Newsstand revenue is related to single copy magazines or bundles of single copy magazines to wholesalers for resale on newsstands. Publications sold to magazine wholesalers are sold with the right to receive credit from Dotdash Meredith for magazines returned to the wholesaler by retailers. Revenue is recognized on the issue's on-sale date as the date aligns most closely with the date that control is transferred to the customer. Wholesalers are invoiced a percentage of estimated final sales the month after the issue’s initial on-sale date. Final payments are settled under normal industry terms.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Print Advertising
Print advertising revenue relates to the sale of advertising in magazines directly to advertisers or through advertising agencies, which is recognized when the magazine issue is published, which is the issue’s on-sale date. The customer is invoiced the agreed-upon price when the advertisements are published under normal industry trade terms. Contracts may include guaranteed circulation levels, as well as sales incentives including volume discounts, rebates, bonus pages, etc. For contracts that include these types of variable consideration, Dotdash Meredith estimates the variable consideration when determining the transaction price. Dotdash Meredith has sufficient historical data and has established processes to reliably estimate the variable components of the transaction price.
Performance Marketing
Performance marketing principally consists of affinity marketing revenue. Dotdash Meredith partners with traditional customer facing channels, such as brick and mortar retailers and call centers, to place magazine subscriptions. Dotdash Meredith net settles with these third-parties monthly.
Other Revenue
Print revenues includes other revenue streams that are primarily projects based. The revenue may relate to any one or combination of the following activities: advertising audience targeting, custom publishing, content strategy and development, email marketing, social media, database marketing, and search engine optimization. Depending on the contractual arrangement, revenue is recognized either as the purchased advertising is run on third-party platforms, or over the contractual period as the products do not have an alternate use to Dotdash Meredith or its other clients. Payment terms vary based on the nature of the contract.
Angi Inc.
Revenue is primarily derived from consumer connection revenue, which comprises fees paid by Angi Leads service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service). Consumer connection revenue varies based upon several factors, including the service requested, product experience offered, and geographic location of service. Consumer connection revenue is generally billed one week following a consumer match, with payment due upon receipt of invoice. The Company maintains revenue reserves for potential credits issued to Angi Leads services providers.
Revenue is also derived from (i) sales of time-based website, mobile and call center advertising to service professionals, (ii) Angi Leads service professional membership subscription fees, (iii) membership subscription fees from consumers, (iv) service warranty subscription and other services and (v) revenue from completed jobs sourced through the Angi Services platforms. Angi service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional, with the average advertising contract term being approximately one year. Angi website, mobile and call center advertising revenue is recognized ratably over the contract term. Revenue from the sale of advertising in the Angie’s List Magazine is recognized in the period in which the publication is distributed. Service professional membership subscription revenue is initially deferred upon receipt of payment and is recognized using the straight-line method over the applicable subscription period, which is typically one year. Angi prepaid consumer membership subscription fees are recognized as revenue using the straight-line method over the term of the applicable subscription period, which is typically one year. Consumers typically pay when a job is scheduled through the Angi Services platform, or when the job is completed for Angi Roofing. Billing practices are governed by the contract terms of each project as negotiated with the consumer. Billings do not necessarily correlate with revenue recognized over time as this is based on the timing of when the consumer receives the promised services.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Prior to January 1, 2020, Handy 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 and resulted in an increase in revenue of $73.8 million during the year ended December 31, 2020.
Search
Ask Media Group revenue consists primarily of advertising revenue generated principally through the display of paid listings in response to search queries, as well as from display advertisements appearing alongside content on its various websites and, to a lesser extent, affiliate commerce commission revenue. Paid listings are advertisements displayed on search results pages that generally contain a link to advertiser websites. The majority of the paid listings displayed by Ask Media Group is supplied to us by Google Inc. ("Google") pursuant to our services agreement with Google. Pursuant to this agreement, Ask Media Group businesses transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through an Ask Media Group business and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing and shares a portion of the fee charged to the advertiser with the Ask Media Group business. The Company recognizes paid listing revenue from Google when it delivers the user's click. In cases where the user’s click is generated due to the efforts of a third-party distributor, we recognize the amount due from Google as revenue and record a revenue share or other payment obligation to the third-party distributor as traffic acquisition costs.
Revenue from display advertising is generated through advertisements sold through programmatic advertising networks. Affiliate commerce commission revenue is generated when an Ask Media Group property refers users to commerce partner websites resulting in a purchase or transaction.
Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. The majority of the paid listings displayed are supplied to us by Google in the manner, and pursuant to the services agreement with Google, described above. To a lesser extent, Desktop revenue also includes fees paid by subscribers for downloadable desktop applications as well as display advertisements. Fees related to subscription downloadable desktop applications are generally recognized over the term of the applicable subscription period, which is primarily one or two years. Fees related to display advertisements are recognized when an advertisement is displayed.
Emerging & Other
Care.com generates revenue primarily through subscription fees from families and caregivers for its suite of products and services, as well as through annual contracts with corporate employers who provide access to Care.com's suite of products and services as an employee benefit and through contracts with businesses that recruit employees through its platform.
Mosaic Group revenue consists primarily of fees paid by subscribers for downloadable mobile applications distributed through the Apple App Store and Google Play Store and directly from consumers, as well as display advertisements. Fees related to subscription downloadable mobile applications are generally recognized either over the term of the subscription period, which is up to one year, for those applications that must be connected to our servers to function, or at the time of the sale when the software license is delivered. Fees related to display advertisements are recognized when an advertisement is displayed.
Bluecrew revenue consists of service revenue, which is generated through staffing workers and recognized as control of the promised services is transferred to our customers.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Vivian Health revenue consists of subscription revenue, which is generated through recruiting agencies that seek access to qualified healthcare professionals and is recognized at the earlier of the full delivery of the promised services or over the length of the subscription period.
The Daily Beast revenue consists of advertising revenue, which is generated primarily through display advertisements (sold directly and through programmatic advertising networks), and to a lesser extent, affiliate commerce commission revenue.
Revenue of IAC Films and College Humor Media, which was sold in the first quarter of 2020, is generated primarily through media production and distribution and advertising. Production revenue is recognized when control is transferred to the customer to broadcast or exhibit, and advertising revenue is recognized when an advertisement is displayed or over the advertising period.
Accounts Receivables, Net of the Allowance for Credit Losses and Revenue Reserves
Accounts receivable include amounts billed and currently due from customers. The allowance for credit losses is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking data regarding customers' ability to pay that is available. Customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date, with the exception of invoices at Dotdash Meredith, which vary by revenue stream as discussed above. The Company also maintains allowances to reserve for potential credits issued to consumers or other revenue adjustments. The amounts of these reserves are based primarily upon historical experience.
Deferred Revenue
Deferred revenue consists of payments that are received or are contractually due in advance of the Company's performance obligation. 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 remaining term of the applicable subscription period or expected completion of its performance obligation is one year or less. The current and non-current deferred revenue balances are $137.7 million and $0.7 million, respectively, at December 31, 2020, and $94.7 million and $0.6 million, respectively, at December 31, 2019. During the year ended December 31, 2021, the Company recognized $132.2 million of revenue that was included in the deferred revenue balance at December 31, 2020. During the year ended December 31, 2020, the Company recognized $86.6 million of revenue that was included in the deferred revenue balance at December 31, 2019. The current and non-current deferred revenue balances are $165.5 million and $0.4 million, respectively, at December 31, 2021. Included in the current deferred revenue balance at December 31, 2021 is $24.1 million related to Meredith, acquired December 1, 2021. Non-current deferred revenue is included in "Other long-term liabilities" in the balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase. Domestically, cash equivalents primarily consist of AAA rated government money market funds, treasury discount notes and time deposits. Internationally, cash equivalents primarily consist of AAA rated government money market funds and time deposits.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Investments in Debt Securities
At times the Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. Marketable debt securities are adjusted to fair value each quarter, and the unrealized gains and losses, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. The Company also invests in non-marketable debt securities as part of its investment strategy. We review our debt securities for impairment each reporting period. The Company recognizes an unrealized loss on debt securities in net earnings when the impairment is determined to be other-than-temporary. Factors we consider in making such determination include the duration, severity and reason for the decline in value and the potential recovery and our intent to sell the debt security. We also consider whether we will be required to sell the security before recovery of its amortized cost basis and whether the amortized cost basis cannot be recovered because of credit losses. If an impairment is considered to be other-than-temporary, the debt security will be written down to its fair value and the loss will be recognized within "Other income (expense), net" in the statement of operations. There were no marketable debt securities at December 31, 2021. At December 31, 2020 marketable debt securities consisted of treasury discount notes.
Certain Risks and Concentrations—Services Agreement with Google (the "Services Agreement")
A meaningful portion of the Company's revenue (and a substantial portion of IAC’s net cash from operating activities attributable to continuing operations that it can freely access) 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 years ended December 31, 2021, 2020 and 2019, total revenue earned from Google was $755.1 million, $556.1 million and $732.1 million, respectively, representing 20%, 20%, and 29%, respectively, of the Company's revenue. The related accounts receivable totaled $89.1 million and $61.9 million at December 31, 2021 and 2020, respectively.
The total revenue earned from the Services Agreement for the years ended December 31, 2021, 2020 and 2019, was $661.3 million, $498.3 million and $677.0 million, respectively, representing 18%, 18% and 27%, respectively, of the Company's revenue.
The revenue attributable to the Services Agreement is earned by Ask Media Group and the Desktop business, both within the Search segment. For the years ended December 31, 2021, 2020 and 2019, revenue earned from the Services Agreement was $542.1 million, $344.8 million and $385.9 million, respectively, within Ask Media Group, and $119.1 million, $153.5 million and $291.1 million, respectively, within the Desktop business.
Effective August 1, 2021, the Company and Google amended the Services Agreement to extend the expiration date from March 31, 2023 to March 31, 2024 and to provide for an automatic renewal for an additional one year period absent a notice of non-renewal from either party on or before March 31, 2023. The Company believes that the amended agreement, taken as a whole, is comparable to its previously existing agreement with Google. 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 have in the past and could in the future require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which have been and could be costly to address or negatively impact revenue and have had and in the future could have an adverse effect on our financial condition and results of operations. As described below, 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-to-consumer ("B2C") business and it may do so in the future.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Certain industry-wide policy changes became effective on July 1, 2019 and August 27, 2020. These industry-wide changes, combined with increased enforcement of policies under the Services Agreement have had a negative impact on the results of operations of the B2C business. During the year ended December 31, 2020, the Company reassessed the fair values of the Desktop reporting unit and the related indefinite-lived intangible assets and recorded goodwill and intangible asset impairments of $265.1 million and $32.2 million, respectively. The reduction in the Company’s fair value estimates was 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.
During the fourth quarter of 2020, Google suspended services with respect to some B2C's products and may do so with respect to other products in the future. As a result, the B2C business elected to modify certain marketing strategies in early January 2021. Subsequently, Google informed us of another policy change in the first quarter of 2021 that became effective on May 10, 2021. We anticipated that this Google policy change would eliminate our ability to successfully introduce and market new B2C products that would be profitable. Therefore, we undertook cost reduction measures and effectively eliminated all marketing of B2C products beginning in March 2021. This elimination of marketing has positively impacted profitability in 2021 because revenue from B2C products is earned over multiple periods beyond just the period in which the initial marketing is incurred. Following the cessation of the introduction of new products in March 2021, the B2C revenue stream relates solely to the then existing installed base of products. For the year ended December 31, 2021, B2C revenue declined by $55.5 million to $77.7 million, while Desktop operating income, excluding the goodwill and intangible asset impairment charges in 2020, increased by $32.5 million to $49.7 million, versus the year ended December 31, 2020. Beyond 2021, we expect the revenue and profits of the B2C business and Desktop, respectively, to decline significantly.
Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. Cash and cash equivalents are maintained with financial institutions and are in excess of Federal Deposit Insurance Corporation insurance limits.
Other Risks
The Company is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Inventories
Inventories consist mainly of paper stock, editorial content, books, and other merchandise at Dotdash Meredith and are stated at the lower of cost or estimated net realizable value. Cost is determined using the first-in, first-out method for books and weighted average cost method for paper and other merchandise.
Buildings, Capitalized Software, Leasehold Improvements, Equipment and Land
Buildings, capitalized software, leasehold improvements, equipment and land are recorded at cost or at fair value to the extent acquired in a business combination. Repairs and maintenance costs are expensed as incurred. Amortization of leasehold improvements, which is included within depreciation within the statement of operations, and depreciation are computed using the straight-line method over the estimated useful lives of the assets, or, in the case of leasehold improvements, the lease term, if shorter.
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized internal use software is $131.6 million and $68.0 million at December 31, 2021 and 2020, respectively.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | |
Asset Category | Estimated Useful Lives |
Buildings and leasehold improvements | 3 to 39 Years |
Capitalized software and computer equipment | 2 to 3 Years |
Furniture and other equipment | 3 to 12 Years |
Business Combinations and Contingent Consideration Arrangements
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The Company usually obtains the assistance of outside valuation experts to assist in the allocation of purchase price to the identifiable intangible assets acquired. While outside valuation experts may be used, management has ultimate responsibility for the valuation methods, models and inputs used and the resulting purchase price allocation. The excess purchase price over the value of net tangible and identifiable intangible assets acquired is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the business combination as of the acquisition date. The acquisition of Meredith closed on December 1, 2021. The allocation of purchase price to the assets acquired and liabilities assumed and determination of the reporting units for Meredith is still in process of being assessed. Once that is completed the determination of fair value of the reporting units will need to be determined so that goodwill can be allocated. Therefore, the allocation of goodwill for the acquisition of Meredith is not complete as of December 31, 2021. See "Note 5—Business Combinations" for a description of the preliminary status of the accounting for this business combination. In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements is initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. Generally, our contingent consideration arrangements are based upon financial performance and/or operating metric targets. 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 arrangement is long-term in nature, applying a discount rate that appropriately captures the risk associated with the obligation to determine the net amount reflected in the financial statements. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement. The changes in the remeasured fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount, if applicable, are recognized in "General and administrative expense" in the statement of operations. See "Note 7—Financial Instruments and Fair Value Measurements" for a discussion of contingent consideration arrangements. Goodwill and Indefinite-Lived Intangible Assets
The Company assesses goodwill and indefinite-lived intangible assets for impairment annually at October 1 or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value.
When the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment equal to the excess is recorded.
For the Company's annual goodwill test at October 1, 2021, a qualitative assessment of the Angi Inc., Care.com, Bluecrew and Vivian Health reporting units' goodwill was performed because the Company concluded it was more likely than not that the fair value of these reporting units was in excess of their respective carrying values. The primary factors that the Company considered in its qualitative assessment for each of these reporting units are described below:
•Angi Inc.'s October 1, 2021 market capitalization of $6.2 billion exceeded its carrying value by approximately $5.0 billion.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
•The Company prepared valuations of the Care.com, Bluecrew and Vivian Health reporting units primarily in connection with the issuance and/or settlement of equity awards that are denominated in the equity of these businesses during the year ended December 31, 2021. The valuations were prepared time proximate to, however, not as of, October 1, 2021. The fair value of each of these businesses was in excess of its October 1, 2021 carrying value.
For the Company's annual goodwill test at October 1, 2021, the Company quantitatively tested the Mosaic Group reporting unit. The Company's quantitative test indicated that there was no impairment. The Company's Dotdash Meredith, Ask Media Group, Desktop, The Daily Beast, IAC Films and Newco reporting units have no goodwill as of October 1, 2021.
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 $243.0 million.
The fair value of the Company's reporting units (except for Angi Inc. described above) is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock-based compensation plans, which can be a significant factor in the decision to apply the qualitative assessment rather than a quantitative test. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on each reporting unit's current results and forecasted future performance, as well as macroeconomic and industry specific factors. The discount rates used in the quantitative test for determining the fair value of the Company's reporting units was 15.0% in both 2021 and 2020 (for the Mosaic reporting unit). Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1, in part, because the level of effort required to perform the quantitative and qualitative assessments is essentially equivalent. The Company determines the fair value of indefinite-lived intangible assets using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. The future cash flows are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged from 10.0% to 40.0% in 2021 and 11.5% to 25.0% in 2020, and the royalty rates used ranged from 1.0% to 5.0% in 2021 and 1.00% to 5.5% in 2020.
If the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value, an impairment equal to the excess is recorded. There are no indefinite-lived intangible assets for which the most recent estimate of the excess fair value over carrying value is less than 20%.
The October 1, 2021 annual assessments of goodwill and indefinite-lived intangible assets did not identify any impairments.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
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 impairments of $212.0 million and $21.4 million related to the goodwill and certain indefinite-lived intangible assets of the Desktop reporting unit.
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 of the Desktop business in the first and third quarters of 2020 was primarily 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 October 1, 2020 annual assessments of goodwill and indefinite-lived intangible assets did not identify any additional impairments.
The October 1, 2019 annual assessment of goodwill and indefinite-lived intangible assets identified a $3.3 million goodwill impairment charge and $0.7 million trade name impairment both related to the College Humor Media business.
Impairment charges recorded on indefinite-lived intangibles are included in "Amortization of intangibles" in the statement of operations.
Digital and Print are separate operating segments within the Dotdash Meredith reporting unit and North America and Europe are separate operating segments within the Angi Inc. reporting unit. Within the Company's Emerging & Other reportable segment, Mosaic Group, Care.com, Bluecrew, Vivian Health, The Daily Beast, IAC Films, and Newco are separate operating segments, which are consistent with its reporting units. Ask Media Group and Desktop are separate reporting units within the Search reportable segment. Goodwill is tested for impairment at the reporting unit level. See "Note 13—Segment Information" for additional information regarding the Company's method of determining operating and reportable segments.
Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, which consist of ROU assets, buildings, capitalized software, leasehold improvements and equipment, and intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. Amortization of definite-lived intangible assets is computed either on a straight-line basis or based on the pattern in which the economic benefits of the asset are expected to be realized.
Fair Value Measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
•Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
•Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
•Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See "Note 7—Financial Instruments and Fair Value Measurements" for a discussion of fair value measurements made using Level 3 inputs. The Company's non-financial assets, such as goodwill, intangible assets, ROU assets and buildings, 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.
Advertising Costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines, social media sites and third parties that distribute our B2C downloadable applications, offline marketing, which is primarily television advertising, partner-related payments to those who direct traffic to the brands within our Angi Inc. segment, and direct-mail costs for magazine subscription acquisition efforts within our Dotdash Meredith segment. Advertising expense is $877.2 million, $796.7 million and $795.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company capitalizes and amortizes the costs associated with certain distribution arrangements that require us to pay a fee per access point delivered. These access points are generally in the form of downloadable applications associated with our direct-to consumer operations. These fees are amortized over the estimated useful lives of the access points to the extent the Company can reasonably estimate a probable future economic benefit and the period over which such benefit will be realized (generally 18 months). Otherwise, the fees are charged to expense as incurred. Beginning in March 2021, the Company effectively eliminated all marketing of B2C products in connection with Google policy changes. Refer to "Certain Risks and Concentrations—Services Agreement with Google (the "Services Agreement") above for additional information. At December 31, 2021 and 2020, the unamortized capitalized downloadable search toolbar costs in our B2C business are $0.6 million and $13.2 million, respectively.
Legal Costs
Legal costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, on potential income tax contingencies as a component of income tax expense.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
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 MTCH Separation. For periods prior thereto, the income tax benefit and/or provision was 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 statement of cash flows.
Pensions and Postretirement Benefits
In connection with the acquisition of Meredith, the Company has assumed the obligations under its pension plans. Pension benefits for the domestic plans are generally based on formulas that reflect interest credits allocated to participants’ accounts based on years of benefit service and annual pensionable earnings. The domestic plans are frozen with respect to new participants. There were no active participants in the international plans so there will be no future service cost for the international plans.
The Company utilizes a mark-to-market approach to account for pension and postretirement benefits. Under this approach, the Company immediately recognizes changes in the fair value of plan assets and actuarial gains or losses in the fourth quarter of each fiscal year or whenever a plan is required to be remeasured. Events requiring a plan remeasurement are recognized in the quarter in which the remeasurement event occurs. The remaining components of pension and other postretirement plan net periodic benefit costs are recorded on a quarterly basis. The discount rates utilized are based on the investment yields of high quality corporate bonds available in the marketplace with maturities equal to projected cash flows of future benefit payments as of the measurement date.
It is the Company’s policy to fund the qualified pension plans to at least the extent required to maintain their fully funded status. In addition, the Company provides health care and life insurance benefits for certain retired employees, the expected costs of which are accrued over the years that the employees render services. It is Company’s policy to fund postretirement benefits as claims are paid. See "Note 17—Pension and Postretirement Benefit Plans" for additional information. Earnings Per Share
Undistributed earnings allocated to the participating security is subtracted from earnings in determining earnings attributable to holders of IAC common stock and Class B common stock for basic net earnings (loss) per share ("EPS"). Basic EPS is computed by dividing net earnings (loss) attributable to holders of IAC common stock and Class B common stock by the weighted-average number of shares of common stock and Class B common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vested resulting in the issuance of common stock that could share in the earnings of the Company. For periods prior to the MTCH Separation, the Company calculated basic and diluted earnings per share using the shares issued on June 30, 2020, the date of the MTCH Separation. See "Note 11—Earnings Per Share" for additional information on dilutive securities. Foreign Currency Translation and Transaction Gains and Losses
The financial position and operating results of foreign entities whose primary economic environment is based on their local currency are consolidated using the local currency as the functional currency. These local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses of these operations are translated at average rates of exchange during the period. Translation gains and losses are included in accumulated other comprehensive income as a component of shareholders' and parent's equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the statement of operations as a component of "Other income (expense), net". See "Note 18—Financial Statement Details" for additional information regarding foreign currency exchange gains and losses. Translation gains and losses relating to foreign entities that are liquidated or substantially liquidated are reclassified out of accumulated other comprehensive income (loss) into earnings. During the years ended December 31, 2021 and 2020, losses and gains of $10.0 million and $0.1 million, respectively, were reclassified into earnings and included in "Other income (expense), net" in the statement of operations. There were no such gains or losses for the year ended December 31, 2019.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is generally expensed over the requisite service period. See "Note 12—Stock-Based Compensation" for a discussion of the Company's stock-based compensation plans. Redeemable Noncontrolling Interests
Noncontrolling interests in the subsidiaries of the Company are ordinarily reported on the balance sheet within shareholders' equity, separately from the Company's equity. However, securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholders' equity. Accordingly, all noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders' and parents' equity in the balance sheet.
In connection with the acquisition of certain subsidiaries, management of these businesses has retained an ownership interest. The Company is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the Company to purchase their interests or allow the Company to acquire such interests at fair value, respectively. The put arrangements do not meet the definition of a derivative instrument as the put agreements do not provide for net settlement. These put and call arrangements become exercisable by the Company and the counter-party at various dates in the future. Two of these arrangements were exercised during the year ended December 31, 2021 and one of these arrangements was exercised during each of the years ended December 31, 2020 and 2019. These put arrangements are exercisable by the counter-party outside the control of the Company. Accordingly, to the extent that the fair value of these interests exceeds the value determined by normal noncontrolling interest accounting, the value of such interests is adjusted to fair value with a corresponding adjustment to additional paid-in capital or invested capital. During the years ended December 31, 2021, 2020 and 2019, the Company recorded adjustments of $777.7 million, $183.3 million and $11.6 million, respectively (of which $777.3 million, $171.0 million and $0.5 million, respectively, were related to Vimeo), to increase these interests to fair value. Fair value determinations require high levels of judgment and are based on various valuation techniques, including market comparables and discounted cash flow projections.
Redeemable noncontrolling interests attributable to discontinued operations at December 31, 2020 was $188.0 million.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted by the Company
ASU 2021-08 – Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU No. 2021-08, which changes how entities recognize assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers. The provisions of ASU No. 2021-08 require acquiring entities to recognize and measure contract assets and contract liabilities, including deferred revenue, acquired in a business combination in accordance with ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers, as if it had originated the contracts. The provisions of ASU No. 2021-08 are effective for fiscal years beginning after December 15, 2022, with early adoption permitted, including adoption in an interim period. The Company early adopted ASU 2021-08 effective in the fourth quarter of 2021. An entity that early adopts in an interim period is required to apply the amendments (i) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early adoption and (ii) prospectively to all business combinations that occur on or after the date of initial application. Early adoption has no retrospective impact on the Company. The adoption of ASU 2021-08 may have a material impact on the purchase accounting for prospective business combinations.
Recent Accounting Pronouncements Not Yet Adopted by the Company
There are no recently issued accounting pronouncements that have not yet been adopted that are expected to have a material effect on the results of operations, financial condition or cash flows of the Company.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 3—INCOME TAXES
U.S. and foreign earnings (loss) before income taxes and noncontrolling interests are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
U.S. | $ | 758,538 | | | $ | 234,345 | | | $ | (11,249) | |
Foreign | (28,732) | | | 9,815 | | | 45,566 | |
Total | $ | 729,806 | | | $ | 244,160 | | | $ | 34,317 | |
The components of the income tax provision (benefit) are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Current income tax provision (benefit): | | | | | |
Federal | $ | (5,818) | | | $ | (29,181) | | | $ | (1,117) | |
State | 4,750 | | | 2,326 | | | 157 | |
Foreign | 6,681 | | | (496) | | | 2,985 | |
Current income tax provision (benefit) | 5,613 | | | (27,351) | | | 2,025 | |
| | | | | |
Deferred income tax provision (benefit): | | | | | |
Federal | 111,755 | | | (8,097) | | | (39,454) | |
State | 18,063 | | | (6,126) | | | (9,746) | |
Foreign | 3,559 | | | (4,133) | | | (174) | |
Deferred income tax provision (benefit) | 133,377 | | | (18,356) | | | (49,374) | |
Income tax provision (benefit) | $ | 138,990 | | | $ | (45,707) | | | $ | (47,349) | |
The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 557,329 | | | $ | 392,871 | |
Long-term lease liabilities | 157,504 | | | 58,457 | |
Customer deposit liability | 56,194 | | | — | |
Tax credit carryforwards | 48,081 | | | 41,970 | |
Accrued expenses | 47,754 | | | 17,247 | |
Stock-based compensation | 25,477 | | | 41,850 | |
Other | 53,263 | | | 32,043 | |
Total deferred tax assets | 945,602 | | | 584,438 | |
Less: valuation allowance | (112,640) | | | (111,691) | |
Net deferred tax assets | 832,962 | | | 472,747 | |
| | | |
Deferred tax liabilities: | | | |
Investment in MGM Resorts International | (389,837) | | | (197,998) | |
Intangible assets, net of accumulated amortization | (271,629) | | | (34,170) | |
Investment in subsidiaries | (227,632) | | | (242,537) | |
Right-of-use assets | (122,095) | | | (43,074) | |
| | | |
Buildings, capitalized software, leasehold improvements, equipment and land, net | (70,959) | | | (16,645) | |
Other | (134,010) | | | (14,926) | |
Total deferred tax liabilities | (1,216,162) | | | (549,350) | |
Net deferred tax liabilities | $ | (383,200) | | | $ | (76,603) | |
At December 31, 2021, the Company had federal and state net operating losses ("NOLs") of $1.8 billion and $1.3 billion, respectively, available to offset future income. Of these federal NOLs, $1.3 billion can be carried forward indefinitely and $0.5 billion, if not utilized, will expire at various times between 2025 and 2036. The state NOLs, if not utilized, will expire at various times between 2022 and 2041. Federal and state NOLs of $1.4 billion and $0.8 billion, respectively, can be used against future taxable income without restriction and the remaining NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, separate return limitations, and applicable law. At December 31, 2021, the Company had foreign NOLs of $496.7 million available to offset future income. Of these foreign NOLs, $446.8 million can be carried forward indefinitely and $49.9 million, if not utilized, will expire at various times between 2022 and 2041. During 2021, the Company recognized tax benefits related to NOLs of $166.4 million. Included in this amount is $49.0 million of tax benefits of acquired attributes, which was recorded as a reduction to goodwill.
At December 31, 2021, the Company had tax credit carryforwards of $65.0 million. Of this amount, $50.8 million relates to credits for research activities, $12.2 million relates to credits for foreign taxes, and $2.0 million relates to various other credits. Of these credit carryforwards, $12.9 million can be carried forward indefinitely and $52.1 million, if not utilized, will expire between 2022 and 2041.
During 2021, the Company's valuation allowance increased by $0.9 million primarily due to the valuation allowance on beginning-of-the-year deferred tax assets related to the Spin-off and acquired foreign net operating losses partially offset by a decrease in other tax loss carryforwards. At December 31, 2021, the Company had a valuation allowance of $112.6 million related to the portion of tax loss carryforwards, foreign tax credits and other items for which it is more likely than not that the tax benefit will not be realized.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
A reconciliation of the income tax provision (benefit) to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Income tax provision at the federal statutory rate of 21% | $ | 153,259 | | | $ | 51,274 | | | $ | 7,207 | |
State income taxes, net of effect of federal tax benefit | 24,289 | | | 16,995 | | | 468 | |
Stock-based compensation | (83,396) | | | (163,633) | | | (56,708) | |
Change in judgement on beginning of the year valuation allowance | 20,248 | | | (3,544) | | | — | |
Non-deductible executive compensation | 14,025 | | | 14,219 | | | 7,409 | |
Research credit | (5,094) | | | (6,078) | | | (4,449) | |
Non-deductible expenses | 4,328 | | | 5,947 | | | 5,353 | |
Deferred tax adjustment for enacted changes in tax laws and rates | 4,049 | | | (14,508) | | | (688) | |
Change in valuation allowance on capital losses | 754 | | | 11,385 | | | (7,365) | |
| | | | | |
Non-deductible goodwill impairment | — | | | 53,012 | | | — | |
Amortizable tax basis related to intercompany transaction | — | | | (7,044) | | | — | |
Other, net | 6,528 | | | (3,732) | | | 1,424 | |
Income tax provision (benefit) | $ | 138,990 | | | $ | (45,707) | | | $ | (47,349) | |
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including penalties but excluding interest, is as follows:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Balance at January 1 | $ | 18,233 | | | $ | 16,585 | | | $ | 14,425 | |
Additions for tax positions related to the current year | 2,855 | | | 3,419 | | | 2,332 | |
Settlements | (1,427) | | | (3,733) | | | — | |
Additions for tax positions of prior years | 3,420 | | | 2,313 | | | 238 | |
Reductions for tax positions of prior years | (1,116) | | | — | | | — | |
Expiration of applicable statutes of limitations | (4,516) | | | (351) | | | (410) | |
Balance at December 31 | $ | 17,449 | | | $ | 18,233 | | | $ | 16,585 | |
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 and for its tax returns filed on a standalone basis following the MTCH Separation. 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, 2013 through 2017, and has begun its audit of the years ended December 31, 2018 through 2019, which include the operations of the Company. The statute of limitations for the years 2013 through 2019 has been extended to December 31, 2023. 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.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At December 31, 2021 and 2020, accruals for interest and penalties are not material.
At December 31, 2021 and 2020, unrecognized tax benefits, including interest and penalties, were $18.0 million and $20.1 million, respectively. Unrecognized tax benefits, including interest and penalties, at December 31, 2021 decreased by $2.1 million due primarily to statute expirations. If unrecognized tax benefits at December 31, 2021 are subsequently recognized, $16.7 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount at December 31, 2020 was $18.5 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $2.8 million by December 31, 2022 due to expected settlements of which $2.5 million would reduce the income tax provision.
At December 31, 2021, all of the Company's international cash can be repatriated without any significant tax consequences.
As a result of the Vimeo Spin-Off, the Company’s net deferred tax liability was adjusted for tax attributes from our federal and consolidated state income tax filings that were allocated between the Company and Vimeo. The allocation attributable to Vimeo was recorded in 2021 and is preliminary and subject to adjustment. Any subsequent adjustment to allocated tax attributes will be recognized as an adjustment to deferred taxes and net earnings from discontinued operations. This adjustment is expected to be made in the fourth quarter of 2022 following the filing of the income tax returns for the year ended December 31, 2021.
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 MTCH Separation. For periods prior thereto, the income tax benefit and/or 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 attributed to continuing operations" in the statement of cash flows.
As a result of the MTCH 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. Following the filing of income tax returns for the year ended December 31, 2021, the allocation was finalized and an adjustment of $7.6 million was recorded to additional paid-in-capital.
NOTE 4—DISCONTINUED OPERATIONS
On May 25, 2021, IAC completed the Spin-off. Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within IAC's financial statements for all periods prior to May 25, 2021.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The components of assets and liabilities of discontinued operations in the balance sheet at December 31, 2020 consisted of the following:
| | | | | |
| December 31, 2020 |
| (In thousands) |
Current assets | |
Cash and cash equivalents | $ | 110,011 | |
Accounts receivable, net | 12,785 | |
Other current assets | 7,681 | |
Total current assets of discontinued operations | $ | 130,477 | |
| |
Non-current assets | |
Leasehold improvements and equipment, net | $ | 3,321 | |
Goodwill | 219,336 | |
Intangible assets, net | 10,854 | |
Deferred income taxes | 26,216 | |
Other non-current assets | 6,820 | |
Total non-current assets of discontinued operations | $ | 266,547 | |
| |
Current liabilities | |
Accounts payable, trade | $ | 3,324 | |
Deferred revenue | 137,436 | |
Accrued expenses and other current liabilities | 43,228 | |
Total current liabilities of discontinued operations | $ | 183,988 | |
| |
Non-current liabilities | |
Lease liability | $ | 1,027 | |
Other non-current liabilities | 1,945 | |
Total non-current liabilities of discontinued operations | $ | 2,972 | |
Redeemable noncontrolling interests attributable to discontinued operations at December 31, 2020 was $188.0 million.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The components of the loss from discontinued operations for the period January 1, 2021 through May 25, 2021 and the years ended December 31, 2020 and 2019 in the statement of operations consisted of the following:
| | | | | | | | | | | | | | | | | |
| January 1 through May 25, | | Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
Revenue | $ | 145,514 | | | $ | 283,146 | | | $ | 195,821 | |
Operating costs and expenses: | | | | | |
Cost of revenue (exclusive of depreciation shown separately below) | 39,995 | | | 88,589 | | | 68,873 | |
Selling and marketing expense | 54,774 | | | 104,216 | | | 84,298 | |
General and administrative expense | 23,343 | | | 47,019 | | | 44,177 | |
Product development expense | 35,651 | | | 62,803 | | | 44,524 | |
Depreciation | 182 | | | 460 | | | 478 | |
Amortization of intangibles | 2,983 | | | 14,745 | | | 9,653 | |
Total operating costs and expenses | 156,928 | | | 317,832 | | | 252,003 | |
Operating loss from discontinued operations | (11,414) | | | (34,686) | | | (56,182) | |
Interest expense | (140) | | | — | | | — | |
Other income (expense), net | 10,172 | | | 93 | | | (6,441) | |
Loss from discontinued operations before tax | (1,382) | | | (34,593) | | | (62,623) | |
Income tax (provision) benefit | (449) | | | 13,312 | | | 13,140 | |
Loss from discontinued operations, net of tax | $ | (1,831) | | | $ | (21,281) | | | $ | (49,483) | |
NOTE 5—BUSINESS COMBINATIONS
Dotdash Meredith
On December 1, 2021, Dotdash acquired 100% of Meredith under the terms of an agreement (the "Merger Agreement") dated as of October 6, 2021. At the effective time of the merger, each outstanding share of common stock of Meredith (other than certain excluded shares) was converted into the right to receive $42.18 in cash. Pursuant to the Merger Agreement, Meredith equity awards were cancelled, and in exchange each holder received such holder’s portion of the merger consideration as set forth in the Merger Agreement, less the per share exercise price in the case of stock options. The Company accounted for this acquisition as a business combination under the acquisition method of accounting.
The total preliminary purchase price was calculated and allocated as follows:
| | | | | |
| Meredith |
| (In thousands) |
Common stock of Meredith | $ | 1,931,376 | |
Cash payment used to settle a portion of Meredith debt | 625,000 | |
Cash settlement of all outstanding vested equity awards and deferred compensation | 130,089 | |
Total preliminary purchase price | $ | 2,686,465 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
| | | | | |
| Meredith |
| (In thousands) |
Cash and cash equivalents | $ | 12,436 | |
Accounts receivable | 373,555 | |
Other current assets | 91,364 | |
Property and equipment | 283,319 | |
Goodwill | 1,567,843 | |
Intangible assets | 1,095,500 | |
Other non-current assets | 682,272 | |
Total assets | 4,106,289 | |
Customer deposit liability | (141,888) | |
Other current liabilities | (459,712) | |
Deferred income taxes | (230,880) | |
Other non-current liabilities | (587,344) | |
Net assets acquired | $ | 2,686,465 | |
The Company acquired Meredith because it is complementary to Dotdash. The purchase was based on the expected future financial performance of Meredith under Dotdash leadership, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the preliminary purchase price being attributed to goodwill. The purchase price attributed to goodwill is not tax deductible.
The preliminary fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
| | | | | | | | | | | |
| Meredith |
| (In thousands) | | Useful Life (Years) |
Indefinite-lived trade names and trademarks | $ | 432,800 | | | Indefinite-lived |
Advertiser relationships | 334,000 | | | 5-7 |
Licensee relationships | 150,000 | | | 3-6 |
Trade name and trademarks | 105,000 | | | 2-5 |
Subscriber relationships | 73,700 | | | 1-2 |
Total identifiable intangible assets acquired | $ | 1,095,500 | | | |
The financial results of Meredith are included in the Company’s consolidated financial statements, within the Dotdash Meredith segment, beginning December 1, 2021. For the year ended December 31, 2021, the Company included $169.9 million of revenue and $59.3 million of net loss in its consolidated statement of operations related to Meredith. The net loss of Meredith reflects $65.1 million in transaction-related costs associated with the acquisition, including charges related to double-trigger change in control payments. Given the proximity of the acquisition to the end of the reporting period, the allocation of the preliminary purchase price to certain assets acquired and liabilities assumed is provisional. These amounts will be subject to review and possible revision during the measurement period, which the Company expects to extend through the fourth quarter of 2022. In addition, the Company is still in the process of identifying acquired assets and assumed liabilities, which may also result in adjustment of the provisional amounts recorded. The subsequent adjustment of the provisional amounts may be material.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The provisional amounts for assets acquired and liabilities assumed include the fair value of:
1.accounts receivable and other receivables, which has been adjusted for an estimated $10.1 million of gross contractual amounts not expected to be collected, may be subject to adjustment for reassessment of collectability as of the date of acquisition, collections and other adjustment subsequent to the acquisition;
2.prepaid expenses and other current and noncurrent assets, which may be subject to adjustment based upon a review of recoverability and consideration of other factors;
3.inventory;
4.property, plant and equipment, for which the preliminary estimates are subject to revision for:
a.identification of assets acquired;
b.finalization of preliminary appraisals; and
c.determination of useful lives;
5.right of use assets and lease liabilities, which will be subject to adjustment upon completion of the review of the inputs, including sublease assumptions, for the calculations;
6.accounts payable and accrued expenses, which will be subject to adjustment based upon subsequent payment and assessment of other factors;
7.indemnification liabilities, which include pre-acquisition income tax and non-income tax liabilities, will be subject to adjustment for:
a. the reconciliation of the income tax return to the income tax provision for the fiscal year ended June 30, 2021 and the short period return from July 1, 2021 through the date of acquisition;
b. the assessment of the amounts of liabilities that existed at the date of acquisition based upon ongoing audits;
c. the assessment of applicable tax rates and other factors; and
d. the identification of other liabilities;
8.contingencies, the initial estimated recorded liability is approximately $100 million, including indemnification liabilities, will be subject to adjustment for additional items that are identified and for additional information obtained that will assist in the determination of liabilities as of the date of acquisition;
9.definite and indefinite-lived intangible assets acquired will be subject to adjustment as additional assets are identified, estimates and forecasts are refined and disaggregated, useful lives are finalized, and other factors deemed relevant are considered;
10. deferred income taxes will be subject to adjustment based upon the completion of the review of the book and tax bases of assets acquired and liabilities assumed, applicable tax rates and the impact of the revisions of estimates for the items described above;
11. goodwill will be subject to adjustment for the impact of the revisions of estimates for the items described above; and
12. the allocation of goodwill to reporting units, which is still in process of being assessed, will be subject to revision based upon the items described above and the finalization of the determination of fair value of the reporting units, which has not yet been completed.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Care.com
On February 11, 2020, the Company acquired 100% of Care.com, a leading online destination for families to easily connect with caregivers, 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 completed the purchase accounting for the Care.com acquisition during the first quarter of 2021.
Unaudited pro forma financial information
The unaudited pro forma financial information in the table below presents the results of the Company, Meredith and Care.com as if these acquisitions had occurred on January 1, 2020 and January 1, 2019, respectively. 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 these acquisitions occurred on the aforementioned dates. For the years ended December 31, 2021 and 2020, pro forma adjustments include an increase in amortization expense of $102.0 million and $65.6 million, respectively, related to intangible asset adjustments in purchase accounting. To present transaction-related costs in the beginning of the earliest comparative period presented pro forma adjustments include a reduction in transaction-related costs of $130.8 million for the year ended December 31, 2021.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| (In thousands, except per share data) |
Revenue | $ | 5,599,334 | | | $ | 4,840,324 | |
Net earnings (loss) from continuing operations | $ | 666,882 | | | $ | (27,702) | |
Basic earnings (loss) per share from continuing operations | $ | 7.57 | | | $ | (0.32) | |
Diluted earnings (loss) per share from continuing operations | $ | 7.15 | | | $ | (0.32) | |
Net earnings (loss) attributable to IAC shareholders | $ | 673,613 | | | $ | (43,177) | |
Basic earnings (loss) per share attributable to IAC shareholders | $ | 7.55 | | | $ | (0.51) | |
Diluted earnings (loss) per share attributable to IAC shareholders | $ | 7.13 | | | $ | (0.51) | |
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Goodwill | $ | 3,226,610 | | | $ | 1,660,102 | |
Intangible assets with definite lives, net of accumulated amortization | 735,743 | | | 148,073 | |
Intangible assets with indefinite lives | 679,149 | | | 246,913 | |
Total goodwill and intangible assets, net | $ | 4,641,502 | | | $ | 2,055,088 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | Additions | | (Deductions) | | | | Foreign Exchange Translation | | Balance at December 31, 2021 |
| (In thousands) |
Dotdash Meredith | $ | — | | | $ | 1,567,843 | | | $ | — | | | | | $ | — | | | $ | 1,567,843 | |
Angi Inc. | 892,133 | | | 26,822 | | | — | | | | | (2,580) | | | 916,375 | |
Emerging & Other | 767,969 | | | — | | | (25,376) | | | | | (201) | | | 742,392 | |
Total | $ | 1,660,102 | | | $ | 1,594,665 | | | $ | (25,376) | | | | | $ | (2,781) | | | $ | 3,226,610 | |
Additions relate to the acquisitions of Meredith, acquired by Dotdash on December 1, 2021, and Total Home Roofing (“Angi Roofing”), acquired by Angi on July 1, 2021. Deductions are primarily related to the allocation of acquired attributes related to the acquisition of Care.com (included in the Emerging & Other segment).
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 | | Additions | | Impairment | | Foreign Exchange Translation | | Balance at December 31, 2020 |
| (In thousands) |
Angi Inc. | $ | 884,296 | | | $ | 2,665 | | | $ | — | | | $ | 5,172 | | | $ | 892,133 | |
Search | 265,146 | | | — | | | (265,146) | | | — | | | — | |
Emerging & Other | 248,051 | | | 519,405 | | | — | | | 513 | | | 767,969 | |
Total | $ | 1,397,493 | | | $ | 522,070 | | | $ | (265,146) | | | $ | 5,685 | | | $ | 1,660,102 | |
Additions are primarily related to the acquisitions of Care.com on February 11, 2020 and LifeCare, acquired by Care.com on October 27, 2020 (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 a $212.0 million impairment related to the goodwill of the Desktop reporting unit and a $21.4 million impairment related to certain indefinite-lived intangible assets of the Desktop reporting unit.
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 of the Desktop business in the first and third quarters of 2020 was primarily 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 December 31, 2021 and December 31, 2020 goodwill balances reflect accumulated impairment losses of $981.3 million and $198.3 million at Search and Dotdash Meredith, respectively. As a result of the impairments recorded in 2020, the Search reportable segment has no goodwill.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
At December 31, 2021 and 2020, intangible assets with definite lives are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Weighted-Average Useful Life |
| (In thousands) | | (Years) |
Advertiser relationships | $ | 334,000 | | | $ | (6,386) | | | $ | 327,614 | | | 5.2 |
Licensee relationships | 150,000 | | | (2,923) | | | 147,077 | | | 4.9 |
Trade names | 145,598 | | | (18,224) | | | 127,374 | | | 5.1 |
Technology | 133,318 | | | (106,415) | | | 26,903 | | | 4.2 |
Service professional relationships | 98,789 | | | (97,877) | | | 912 | | | 3.0 |
Subscriber relationships | 73,700 | | | (3,961) | | | 69,739 | | | 2.0 |
Customer lists and user base | 68,730 | | | (32,606) | | | 36,124 | | | 6.4 |
Other | 10,439 | | | (10,439) | | | — | | | 3.4 |
Total | $ | 1,014,574 | | | $ | (278,831) | | | $ | 735,743 | | | 4.6 |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Weighted-Average Useful Life |
| (In thousands) | | (Years) |
Technology | $ | 142,247 | | | $ | (82,813) | | | $ | 59,434 | | | 4.2 |
Service professional relationships | 97,960 | | | (97,312) | | | 648 | | | 3.0 |
Customer lists and user base | 75,687 | | | (22,027) | | | 53,660 | | | 4.0 |
Trade names | 50,633 | | | (16,760) | | | 33,873 | | | 6.9 |
Memberships | 15,900 | | | (15,900) | | | — | | | 3.0 |
Other | 10,439 | | | (9,981) | | | 458 | | | 3.4 |
Total | $ | 392,866 | | | $ | (244,793) | | | $ | 148,073 | | | 4.1 |
At December 31, 2021, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
| | | | | |
Years Ending December 31, | (In thousands) |
2022 | $ | 216,674 | |
2023 | 176,238 | |
2024 | 129,740 | |
2025 | 98,865 | |
2026 | 81,736 | |
Thereafter | 32,490 | |
Total | $ | 735,743 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 7—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Marketable Securities
At December 31, 2021 and 2020, the fair value of marketable securities are as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Marketable equity security | $ | 19,788 | | | $ | — | |
Available for sale marketable debt securities | — | | | 224,979 | |
Total marketable securities | $ | 19,788 | | | $ | 224,979 | |
The Company has one investment in a marketable equity security at December 31, 2021, which is carried at fair value following the investee's initial public offering in 2021; prior to this investee's initial public offering, the investment was accounted for as an equity security without a readily determinable fair value. The Company recorded an unrealized gain of $18.8 million during the year ended December 31, 2021 for this investment. The Company sold its shares in another marketable equity security in the third quarter of 2021, which, prior to this investee's initial public offering, was accounted for as an equity security without a readily determinable fair value, and recorded a net realized gain of $7.2 million on the sale of this investment. The realized and unrealized gains related to these investments are included in "Other income (expense), net" in the statement of operations.
At December 31, 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 | $ | 224,976 | | | $ | 3 | | | $ | — | | | $ | 224,979 | |
Total available-for-sale marketable debt securities | $ | 224,976 | | | $ | 3 | | | $ | — | | | $ | 224,979 | |
The contractual maturities of debt securities classified as current available-for-sale at December 31, 2020 were within one year. There were no investments in available-for-sale marketable debt securities that had been in a continuous unrealized loss position for longer than twelve months at December 31, 2020.
Investment in MGM Resorts International
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Investment in MGM Resorts International ("MGM") | $ | 2,649,442 | | | $ | 1,860,158 | |
During the second and third quarters of 2020, the Company purchased a total of 59.0 million shares of MGM. The fair value of the investment in MGM is remeasured each reporting period based upon MGM's closing stock price on the New York Stock Exchange on that last trading day in the reporting period and any unrealized gains or losses are included in the statement of operations. For the years ended December 31, 2021 and 2020, the Company recorded unrealized gains on its investment in MGM of $789.3 million and $840.5 million, respectively. The cumulative gain through December 31, 2021 is $1.6 billion.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Long-term Investments
Long-term investments consist of:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Equity securities without readily determinable fair values | $ | 324,649 | | | $ | 296,491 | |
Equity method investment | 3,189 | | | 1,152 | |
Total long-term investments | $ | 327,838 | | | $ | 297,643 | |
Equity Securities without Readily Determinable Fair Values
The following table presents a summary of unrealized gains and losses recorded in "Other income (expense), net" in the statement of operations as adjustments to the carrying value of equity securities without readily determinable fair values held at December 31, 2021 and 2020.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| (In thousands) |
Upward adjustments (gross unrealized gains) | $ | 8,992 | | | $ | — | |
Downward adjustments including impairments (gross unrealized losses) | (100) | | | (51,484) | |
Total | $ | 8,892 | | | $ | (51,484) | |
During the first quarter of 2020, the Company recorded impairments of $51.5 million related to certain equity securities without readily determinable fair values due to the impact of COVID-19.
The cumulative upward and downward adjustments (including impairments) to the carrying value of equity securities without readily determinable fair values held at December 31, 2021 were $28.7 million and $43.6 million, respectively.
Realized and unrealized gains and losses for the Company's investments without readily determinable fair values for the years ended December 31, 2021, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Realized gains, net, for equity securities sold | $ | 5,773 | | | $ | 1,873 | | | $ | 20,883 | |
Unrealized gains, net, on equity securities held | 8,892 | | | 797,565 | | | 18,505 | |
Total gains recognized, net | $ | 14,665 | | | $ | 799,438 | | | $ | 39,388 | |
All gains and losses on equity securities without readily determinable fair values, realized and unrealized, are recognized in "Other income (expense), net" in the statement of operations.
Equity Method Investment
During 2021 and 2020, the Company acquired common shares of Turo Inc. ("Turo"), a peer-to-peer car sharing marketplace. This investment is accounted for under the equity method of accounting given the Company's ownership interest of approximately 27.5% on a fully diluted basis in the form of preferred shares, which are not common stock equivalents. The Company accounts for the equity losses for this investment on a one quarter lag.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Market Prices for Identical Assets in Active Markets (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 | $ | 1,660,921 | | | $ | — | | | $ | — | | | $ | 1,660,921 | |
Time deposits | — | | | 6,057 | | | — | | | 6,057 | |
Marketable equity security | 19,788 | | | — | | | — | | | 19,788 | |
Investment in MGM | 2,649,442 | | | — | | | — | | | 2,649,442 | |
Other non-current assets: | | | | | | | |
Warrant | — | | | — | | | 109,294 | | | 109,294 | |
Total | $ | 4,330,151 | | | $ | 6,057 | | | $ | 109,294 | | | $ | 4,445,502 | |
| | | | | | | |
Liabilities: | | | | | | | |
Contingent consideration arrangements | | | | | $ | (612) | | | $ | (612) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Quoted Market Prices for Identical Assets in Active Markets (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 | $ | 1,769,239 | | | $ | — | | | $ | — | | | $ | 1,769,239 | |
Treasury discount notes | — | | | 1,224,966 | | | — | | | 1,224,966 | |
Time deposits | — | | | 2,721 | | | — | | | 2,721 | |
Marketable debt securities: | | | | | | | |
Treasury discount notes | — | | | 224,979 | | | — | | | 224,979 | |
Investment in MGM | 1,860,158 | | | — | | | — | | | 1,860,158 | |
Other non-current assets: | | | | | | | |
Warrant | — | | | — | | | 5,276 | | | 5,276 | |
Total | $ | 3,629,397 | | | $ | 1,452,666 | | | $ | 5,276 | | | $ | 5,087,339 | |
| | | | | | | |
Liabilities: | | | | | | | |
Contingent consideration arrangement | | | | | $ | — | | | $ | — | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table presents the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| Warrant | | Contingent Consideration Arrangements | | Warrant | | Contingent Consideration Arrangement |
| (In thousands) |
Balance at January 1 | $ | 5,276 | | | $ | — | | | $ | 8,495 | | | $ | (6,918) | |
Fair value at date of acquisition | — | | | (620) | | | — | | | (1,000) | |
Total net gains (losses): | | | | | | | |
Fair value adjustments included in earnings | 104,018 | | | (14,992) | | | (3,219) | | | 6,918 | |
Settlements | — | | | 15,000 | | | — | | | 1,000 | |
Balance at December 31 | $ | 109,294 | | | $ | (612) | | | $ | 5,276 | | | $ | — | |
Warrant
As part of the Company's investment in Turo preferred shares, the Company received a warrant that is recorded at fair value each reporting period with any change included in "Other income (expense), net" in the 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 balance sheet.
Contingent Consideration Arrangements
At December 31, 2021, the Company has two outstanding contingent consideration arrangements related to business combinations. The maximum contingent payments related to these arrangements is $7.0 million. During the third quarter of 2021, the Company recorded a $15.0 million loss related to one of these contingent consideration arrangements due to a change in estimate of the liability related to this arrangement. The amount was paid in full during the fourth quarter of 2021. The Company does not expect to make any further payments related to this contingent consideration arrangement. In connection with the Meredith acquisition on December 1, 2021, the Company assumed a contingent consideration arrangement liability of $0.6 million related to a prior Meredith business combination. 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. The contingent consideration arrangement liability at December 31, 2021 is included in "Accrued expenses and other current liabilities" in the balance sheet.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| (In thousands) |
Current portion of long-term debt | $ | (30,000) | | | $ | (29,550) | | | $ | — | | | $ | — | |
Long-term debt, net(a) | $ | (2,046,237) | | | $ | (2,061,450) | | | $ | (712,277) | | | $ | (725,700) | |
_________________
(a) At December 31, 2021 and 2020, the carrying value of long-term debt, net includes unamortized original issue discount and debt issuance costs of $23.8 million and $7.7 million, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
At December 31, 2021 and 2020, 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.
NOTE 8—LONG-TERM DEBT
Long-term debt consists of:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Dotdash Meredith Debt | | | |
Dotdash Meredith Term Loan A ("Dotdash Meredith Term Loan A") due December 1, 2026 | $ | 350,000 | | | $ | — | |
Dotdash Meredith Term Loan B ("Dotdash Meredith Term Loan B") due December 1, 2028 | 1,250,000 | | | — | |
Total Dotdash Meredith long-term debt | 1,600,000 | | | — | |
Less: current portion of Dotdash Meredith long-term debt | 30,000 | | | — | |
Less: original issue discount | 6,176 | | | — | |
Less: unamortized debt issuance costs | 12,139 | | | — | |
Total Dotdash Meredith long-term debt, net | 1,551,685 | | | — | |
| | | |
ANGI Group Debt | | | |
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 | | | 500,000 | |
ANGI Group Term Loan due November 5, 2023 ("ANGI Group Term Loan") | — | | | 220,000 | |
Total long-term debt | 500,000 | | | 720,000 | |
Less: unamortized debt issuance costs | 5,448 | | | 7,723 | |
Total ANGI Group long-term debt, net | 494,552 | | | 712,277 | |
| | | |
Total long-term debt, net | $ | 2,046,237 | | | $ | 712,277 | |
Dotdash Meredith Term Loans and Dotdash Meredith Revolving Facility
On December 1, 2021, Dotdash Meredith entered into a credit agreement ("Dotdash Meredith Credit Agreement"), which provides for (i) the five-year $350 million Dotdash Meredith Term Loan A, (ii) the seven-year $1.25 billion Dotdash Meredith Term Loan B (and together with Dotdash Meredith Term Loan A, the "Dotdash Meredith Term Loans") and (iii) a five-year $150 million revolving credit facility ("Dotdash Meredith Revolving Facility"). The proceeds of the Dotdash Meredith Term Loans were used to fund a portion of the purchase price for the acquisition of Meredith and pay related fees and expenses. The Dotdash Meredith Term Loan A bears interest at adjusted term secured overnight financing rate ("Adjusted Term SOFR") as defined in the Dotdash Meredith Credit Agreement plus an applicable margin depending on Dotdash Meredith's most recently reported consolidated net leverage ratio, as defined in the Dotdash Meredith Credit Agreement. At December 31, 2021, the Dotdash Meredith Term Loan A bore interest at Adjusted Term SOFR plus 2.00%, or 2.15%. The Dotdash Meredith Term Loan B bore interest at Adjusted Term SOFR, subject to a minimum of 0.50% plus 4.00%, or 4.50% at December 31, 2021. Interest payments are due at least quarterly through the terms of the Dotdash Meredith Term Loans.
The outstanding balances of the Dotdash Meredith Term A and Dotdash Meredith Term Loan B were $350.0 million and $1.25 billion at December 31, 2021, respectively. The Dotdash Meredith Term Loan A requires quarterly principal payments of $4.4 million through December 31, 2024, $8.8 million through December 31, 2025 and $13.1 million thereafter through maturity. The Dotdash Meredith Term Loan B requires quarterly payments of $3.1 million through maturity. Commencing December 31, 2022, pursuant to the Dotdash Meredith Credit Agreement, the Dotdash Meredith Term Loan B may require additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, in part, is governed by the net leverage ratio.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
There were no outstanding borrowings under the Dotdash Meredith Revolving Facility at December 31, 2021. The annual commitment fee on undrawn funds is based on the consolidated net leverage ratio, as defined in the Dotdash Meredith Credit Agreement, most recently reported and was 35 basis points at December 31, 2021. Any borrowings under the Dotdash Meredith Revolving Facility would bear interest, at Dotdash Meredith's option, at either a base rate or term benchmark rate, plus an applicable margin, which is based on Dotdash Meredith's net leverage ratio.
Commencing March 31, 2022, the Dotdash Meredith Credit Agreement requires Dotdash Meredith to maintain a consolidated net leverage ratio as of the last day of each quarter of no greater than 5.5 to 1.0 provided that either (i) $1.00 or more is drawn under the Dotdash Meredith Revolving Facility or Dotdash Meredith Term Loan A, or (ii) the outstanding face amount of undrawn letters of credit, other than cash collateralized letters of credit at 102%, exceeds $25 million, subject to certain increases for qualifying material acquisitions. The Dotdash Meredith Credit Agreement also contains covenants that would limit Dotdash Meredith’s ability to pay dividends or make distributions in the event a default has occurred or if Dotdash Meredith’s consolidated net leverage ratio (as defined in the Dotdash Meredith Credit Agreement) exceeds 4.0 to 1.0. There were no such limitations at December 31, 2021.
The obligations under the Dotdash Meredith Credit Agreement are guaranteed by certain of Dotdash Meredith's wholly-owned subsidiaries, and are secured by substantially all of the assets of Dotdash Meredith and certain of its subsidiaries.
ANGI Group Senior Notes
The ANGI Group Senior Notes were issued on August 20, 2020, the proceeds of which have been used for general corporate purposes, including the Angi Roofing acquisition, and treasury share repurchases. 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 ANGI Group’s secured leverage ratio (as defined in the indenture) exceeds 3.75 to 1.0. At December 31, 2021, there were no limitations pursuant thereto.
ANGI Group Revolving Facility
The $250 million ANGI Group Revolving Facility, which otherwise would have expired on November 5, 2023, was terminated effective August 3, 2021. No amounts were ever drawn under the ANGI Group Revolving Facility prior to its termination.
ANGI Group Term Loan
As of May 6, 2021, the outstanding balance of the ANGI Group Term Loan was repaid in its entirety. The outstanding balance of the ANGI Group Term Loan at December 31, 2020 was $220.0 million and bore interest at 2.16%.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Long-term Debt Maturities:
Long-term debt maturities at December 31, 2021 are summarized in the table below:
| | | | | |
Years Ending December 31, | (In thousands) |
2022 | $ | 30,000 | |
2023 | 30,000 | |
2024 | 30,000 | |
2025 | 47,500 | |
2026 | 275,000 | |
Thereafter | 1,687,500 | |
Total | 2,100,000 | |
Less: current portion of long-term debt | 30,000 | |
Less: unamortized original issue discount | 6,176 | |
Less: unamortized debt issuance costs | 17,587 | |
Total long-term debt, net | $ | 2,046,237 | |
NOTE 9—SHAREHOLDERS' EQUITY
Description of Common Stock and Class B Convertible Common Stock
Except as described herein, shares of IAC common stock and IAC Class B common stock are identical.
Each holder of shares of IAC common stock and IAC Class B common stock vote together as a single class with respect to matters that may be submitted to a vote or for the consent of IAC's shareholders generally, including the election of directors. In connection with any such vote, each holder of IAC common stock is entitled to one vote for each share of IAC common stock held and each holder of IAC Class B common stock is entitled to ten votes for each share of IAC Class B common stock held. Notwithstanding the foregoing, the holders of shares of IAC common stock, acting as a single class, are entitled to elect 25% of the total number of IAC's directors, and, in the event that 25% of the total number of directors shall result in a fraction of a director, then the holders of shares of IAC common stock, acting as a single class, are entitled to elect the next higher whole number of IAC's directors. In addition, Delaware law requires that certain matters be approved by the holders of shares of IAC common stock or holders of IAC Class B common stock voting as a separate class.
Shares of IAC Class B common stock are convertible into shares of IAC common stock at the option of the holder thereof, at any time, on a share-for-share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of IAC by means of a stock dividend on, or a stock split or combination of, outstanding shares of IAC common stock or IAC Class B common stock, or in the event of any merger, consolidation or other reorganization of IAC with another corporation. Upon the conversion of shares of IAC Class B common stock into shares of IAC common stock, those shares of IAC Class B common stock will be retired and will not be subject to reissue. Shares of IAC common stock are not convertible into shares of IAC Class B common stock.
The holders of shares of IAC common stock and the holders of shares of IAC Class B common stock are entitled to receive, share for share, such dividends as may be declared by IAC's Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution, distribution of assets or winding-up of IAC, the holders of shares of IAC common stock and the holders of shares of IAC Class B common stock are entitled to receive, share for share, all the assets of IAC available for distribution to its stockholders, after the rights of the holders of any IAC preferred stock have been satisfied.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Equity Transactions related to the Spin-Off
In connection with the Spin-Off, IAC amended its certificate of incorporation to provide for the following:
•the reclassification of each share of IAC par value $0.001 common stock into (i) one share of IAC par value $0.0001 common stock and (ii) 1/100th of a share of IAC par value $0.01 Series 1 mandatorily exchangeable preferred stock that was automatically exchanged for 1.6235 shares of Vimeo common stock and then immediately retired; and
•the reclassification of each share of IAC par value $0.001 Class B common stock into (i) one share of IAC par value $0.0001 Class B common stock and (ii) 1/100th of a share of IAC par value $0.01 Series 2 mandatorily exchangeable preferred stock that was automatically exchanged for 1.6235 shares of Vimeo Class B common stock and then immediately retired.
Common Stock Repurchases
On June 30, 2020, the Board of Directors of the Company authorized repurchases up to 8.0 million shares of common stock, which is equal to the number of shares that were available under the repurchase authorization at Old IAC immediately prior to the MTCH Separation. For the year ended December 31, 2021 and for the period from the MTCH Separation through December 31, 2020 there were no repurchases of IAC common stock.
NOTE 10—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the components of accumulated other comprehensive income (loss) and items reclassified out of accumulated other comprehensive income (loss) into earnings:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Marketable Debt Securities | | Accumulated Other Comprehensive (Loss) Income |
| (In thousands) |
Balance at January 1 | $ | (6,172) | | | $ | 2 | | | $ | (6,170) | |
Other comprehensive income (loss) before reclassifications | 527 | | | (2) | | | 525 | |
Amounts reclassified to earnings | 10,032 | | | — | | | 10,032 | |
Net current period other comprehensive income (loss) | 10,559 | | | (2) | | | 10,557 | |
Accumulated other comprehensive loss allocated to noncontrolling interests during the period | 10 | | | — | | | 10 | |
Balance at December 31 | $ | 4,397 | | | $ | — | | | $ | 4,397 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Marketable Debt Securities | | Accumulated Other Comprehensive (Loss) Income |
| (In thousands) |
Balance at January 1 | $ | (12,226) | | | $ | — | | | $ | (12,226) | |
Other comprehensive income before reclassifications | 6,236 | | | 2 | | | 6,238 | |
Amounts reclassified to earnings | (144) | | | — | | | (144) | |
Net current period other comprehensive income | 6,092 | | | 2 | | | 6,094 | |
Accumulated other comprehensive income allocated to noncontrolling interests during the period | (38) | | | — | | | (38) | |
Balance at December 31 | $ | (6,172) | | | $ | 2 | | | $ | (6,170) | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Marketable Debt Securities | | Accumulated Other Comprehensive (Loss) Income |
| (In thousands) |
Balance at January 1 | $ | (12,543) | | | $ | 2 | | | $ | (12,541) | |
Other comprehensive income (loss) | 337 | | | (2) | | | 335 | |
Net current period other comprehensive income (loss) | 337 | | | (2) | | | 335 | |
Accumulated other comprehensive income allocated to noncontrolling interests during the period | (20) | | | — | | | (20) | |
Balance at December 31 | $ | (12,226) | | | $ | — | | | $ | (12,226) | |
The amounts reclassified out of foreign currency translation adjustment into earnings for the years ended December 31, 2021 and 2020 relate to the substantial liquidation of certain international subsidiaries.
At December 31, 2021, 2020 and 2019, there was no tax benefit or provision on the accumulated other comprehensive income (loss).
NOTE 11—EARNINGS PER SHARE
The Company treats its common stock and Class B common stock as one class of stock for net earnings (loss) per share purposes as both classes of stock participate in earnings, dividends and other distributions on the same basis. The restricted stock award granted to our Chief Executive Officer ("CEO") on November 5, 2020 is a participating security and the Company calculates EPS using the two-class method since those restricted shares are unvested and have a non-forfeitable dividend right in the event the Company declares a cash dividend on common shares and participate in all other distributions of the Company in the same manner as all other IAC common shares.
Undistributed earnings allocated to the participating security is subtracted from earnings in determining earnings attributable to holders of IAC common stock and Class B common stock for basic EPS. Basic EPS is computed by dividing net earnings (loss) attributable to holders of IAC common stock and Class B common stock by the weighted-average number of shares of common stock and Class B common stock outstanding during the period.
For the calculation of diluted EPS, net earnings (loss) attributable to holders of IAC common stock and Class B common stock is adjusted for the impact from our public subsidiary's dilutive securities, if applicable, and the reallocation of undistributed earnings allocated to the participating security by the weighted-average number of common stock and Class B common stock outstanding plus dilutive securities during the period.
The numerator and denominator of basic and diluted EPS computations for the Company’s common stock and Class B common stock are calculated as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | 2020 | 2019 |
| (In thousands, except per share data) |
Basic EPS: | | | | | |
Numerator: | | | | | |
Net earnings from continuing operations | $ | 590,816 | | | $ | 289,867 | | | $ | 81,666 | |
Net loss (earnings) attributable to noncontrolling interests of continuing operations | 8,748 | | | 726 | | | (9,945) | |
Net earnings attributed to unvested participating security | (20,160) | | | — | | | — | |
Net earnings from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | $ | 579,404 | | | $ | 290,593 | | | $ | 71,721 | |
| | | | | |
Net loss from discontinued operations, net of tax | $ | (1,831) | | | $ | (21,281) | | | $ | (49,483) | |
Net (earnings) loss attributable to noncontrolling interests of discontinued operations | (186) | | | 414 | | | 657 | |
Net loss attributed to unvested participating security | 68 | | | — | | | — | |
Net loss from discontinued operations attributable to IAC Common Stock and Class B common stock shareholders | $ | (1,949) | | | $ | (20,867) | | | $ | (48,826) | |
| | | | | |
Net earnings attributable to IAC Common Stock and Class B common stock shareholders | $ | 577,455 | | | $ | 269,726 | | | $ | 22,895 | |
| | | | | |
Denominator: | | | | | |
Weighted average basic IAC Common Stock and Class B common stock shares outstanding (a) | 86,222 | | | 85,355 | | | 85,132 | |
| | | | | |
Earnings (loss) per share: |
Earnings per share from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | $ | 6.72 | | | $ | 3.40 | | | $ | 0.84 | |
Loss per share from discontinued operations, net of tax, attributable to IAC Common Stock and Class B common stock shareholders | $ | (0.02) | | | $ | (0.24) | | | $ | (0.57) | |
Earnings per share attributable to IAC shareholders and Class B common stock shareholders | $ | 6.70 | | | $ | 3.16 | | | $ | 0.27 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | 2020 | 2019 |
| (In thousands, except per share data) |
Diluted EPS | | | | | |
Numerator: | | | | | |
Net earnings from continuing operations | $ | 590,816 | | | $ | 289,867 | | | $ | 81,666 | |
Net loss (earnings) attributable to noncontrolling interests of continuing operations | 8,748 | | | 726 | | | (9,945) | |
Net earnings attributed to unvested participating security | (18,981) | | | — | | | — | |
Impact from public subsidiary's dilutive securities (c) | 406 | | | 71 | | | — | |
Net earnings from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | $ | 580,989 | | | $ | 290,664 | | | $ | 71,721 | |
| | | | | |
Loss from discontinued operations, net of tax | $ | (1,831) | | | $ | (21,281) | | | $ | (49,483) | |
Net (earnings) loss attributable to noncontrolling interests of discontinued operations | (186) | | | 414 | | | 657 | |
Net loss attributed to unvested participating security | 64 | | | — | | | — | |
Net loss from discontinued operations attributable to IAC Common Stock and Class B common stock shareholders | $ | (1,953) | | | $ | (20,867) | | | $ | (48,826) | |
| | | | | |
Net earnings attributable to IAC Common Stock and Class B common stock shareholders | $ | 579,036 | | | $ | 269,797 | | | $ | 22,895 | |
| | | | | |
| | | | | |
Denominator: | | | | | |
Weighted average basic IAC Common Stock and Class B common stock shares outstanding (a) | 86,222 | | | 85,355 | | | 85,132 | |
Dilutive securities (b)(c)(d)(e) | 5,606 | | | 5,593 | | | — | |
Denominator for earnings per share—weighted average shares (b)(c)(d(e) | 91,828 | | | 90,948 | | | 85,132 | |
| | | | | |
Earnings (loss) per share: | | | | | |
Earnings per share from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | $ | 6.33 | | | $ | 3.20 | | | $ | 0.84 | |
Loss per share from discontinued operations, net of tax, attributable to IAC Common Stock and Class B common stock shareholders | $ | (0.02) | | | $ | (0.23) | | | $ | (0.57) | |
Earnings per share attributable to IAC Common Stock and Class B common stock shareholders | $ | 6.31 | | | $ | 2.97 | | | $ | 0.27 | |
__________________________________________________________________
(a) On November 5, 2020, IAC's CEO was granted a stock-based award in the form of 3.0 million shares of restricted common stock. The number of shares that ultimately vests is subject to the satisfaction of growth targets in IAC's stock price over the 10-year service condition of the award. These restricted shares have a non-forfeitable dividend right in the event the Company declares a cash dividend on its common shares and participate in all other distributions of the Company in the same manner as all other IAC common shares. Accordingly, the two-class method of calculating EPS is used. While the restricted shares are presented as outstanding shares in the balance sheet, these shares are excluded from the weighted average shares outstanding in calculating basic EPS and the allocable portion of net earnings are also excluded. Fully diluted EPS reflects the impact on earnings and fully diluted shares in the manner that is most dilutive.
(b) The Company computed basic and diluted EPS for periods prior to the MTCH Separation using the shares issued on June 30, 2020 in connection with the MTCH Separation.
(c) IAC has the option to settle certain Angi Inc. stock-based awards in its shares. For the years ended December 31, 2021 and 2020 it is more dilutive for IAC to settle these Angi Inc. equity awards. The impact on net earnings relates to the settlement of Angi Inc.'s dilutive securities in IAC common shares.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(d) If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and subsidiary denominated equity and vesting of restricted common stock, restricted stock units ("RSUs") and market-based awards ("MSUs"). For the years ended December 31, 2021 and 2020, 3.0 million and 3.1 million, respectively, of potentially dilutive securities were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.
(e) See "Note 12—Stock-Based Compensation" for additional information on the grant of IAC restricted common stock to its CEO and equity instruments denominated in the shares of certain subsidiaries. NOTE 12—STOCK-BASED COMPENSATION
IAC Denominated Stock-based Awards
IAC currently has one active plan (the "Plan") under which stock-based awards denominated in shares of IAC common stock have been and may be granted. This Plan was an Old IAC plan and was adopted by the Company and became effective upon the consummation of the MTCH Separation. The Plan has a stated term of ten years. The Plan does not specify grant dates or vesting schedules of awards as those determinations have been delegated to the Compensation and Human Resources Committee of IAC's Board of Directors (the "Committee"). Each grant agreement reflects the vesting schedule for that particular grant as determined by the Committee. There are also outstanding stock-based awards that were granted under older plans that have since expired or been discontinued. The Plan provides for grants of stock options to acquire shares of IAC common stock (the exercise price of stock options granted will not be less than the market price of the Company's common stock on the grant date), RSUs denominated in shares of IAC common stock, including those that may be linked to the achievement of the Company's stock price, known as market-based awards ("MSUs") and those that may be linked to the achievement of a performance target, known as performance-based awards ("PSUs"), restricted stock, as well as other equity awards. The Plan authorizes the Company to grant awards to its employees, officers, directors and consultants. At December 31, 2021, there are 31.6 million shares of stock reserved for future issuance under this plan. This number reflects an adjustment to the number of shares originally authorized under the plan made in connection with the MTCH Separation and pursuant to the plan terms.
RSU awards currently outstanding generally cliff-vest after a three or five-year period in each case, from the grant date. All outstanding stock options are fully vested. There are no MSU or PSU awards outstanding at December 31, 2021 and 2020. The restricted stock award currently outstanding cliff vests on the ten-year anniversary of the November 5, 2020 grant date based on the satisfaction of IAC stock price targets and continued employment through the vesting date.
The amount of stock-based compensation expense recognized in the statement of operations is net of estimated forfeitures. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. The expense ultimately recorded is for the awards that vest. At December 31, 2021, there is $365.1 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 5.1 years.
The total income tax benefit recognized in the statement of operations for the years ended December 31, 2021, 2020 and 2019 related to all stock-based compensation is $101.8 million, $198.3 million and $81.5 million, respectively.
The aggregate income tax benefit recognized related to the exercise of stock options for the years ended December 31, 2021, 2020 and 2019, is $81.0 million, $165.8 million, and $64.0 million, respectively. As the Company is currently in a NOL position, there will be some delay in the timing of the realization of the cash benefit of the income tax deductions related to stock-based compensation because it is dependent upon the amount and timing of future taxable income and the timing of estimated income tax payments.
IAC Restricted Common Stock
On November 5, 2020, the Company entered into a new, ten-year employment agreement and a Restricted Stock Agreement ("RSA Agreement") with Joseph Levin, IAC's Chief Executive Officer. The RSA Agreement provides for a grant of 3,000,000 shares of IAC restricted common stock that cliff vest on the ten-year anniversary of the grant date based on satisfaction of IAC's stock price targets and Mr. Levin's continued employment through the vesting date.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Mr. Levin may request an extension of the measurement and vesting period from 10 to 12 years and IAC will consider the request in light of the circumstances.
Mr. Levin may elect to accelerate vesting of the IAC restricted shares, effective on the 6th, 7th, 8th, or 9th anniversary of the grant date, in which case performance will be measured through such date, and Mr. Levin will receive a pro-rated portion of the award (based on the years elapsed from the grant date) and any remaining shares will be forfeited. The applicable stock price goals are proportionately lower on the earlier vesting dates.
The value of restricted common stock grant was estimated using a lattice model that incorporates a Monte Carlo simulation of IAC's stock price. The fair value of the restricted common stock grant on November 5, 2020 was $61.06 per share. The total grant date fair value of the award was $183.2 million.
In connection with the Spin-off, pursuant to the RSA Agreement, the stock price targets of the IAC restricted stock award were adjusted to reflect the effect of the Spin-off and Vimeo entered into a separate restricted stock agreement granting Mr. Levin shares of Vimeo common stock subject to the same terms and conditions of the RSA Agreement except for the stock price targets for each respective award. The total fair value of the modified IAC restricted stock award and the new Vimeo restricted stock award was $228.3 million, of which $141.1 million was allocated to the IAC restricted stock award and $87.3 million was allocated to the Vimeo restricted stock award. Both awards were estimated using a lattice model that incorporated a Monte Carlo simulation of IAC's and Vimeo's stock price on the modification date. In connection with the modified IAC restricted stock award, $10.1 million of expense had previously been recorded prior to the Spin-off and $131.0 million of expense is to be recognized over the remaining vesting period.
IAC Restricted Stock Units
RSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of IAC common stock and with the value of each RSU equal to the fair value of IAC common stock at the date of grant. Each RSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. The expense is measured at the grant date as the fair value of IAC common stock and expensed as stock-based compensation over the vesting term.
Unvested RSUs outstanding at December 31, 2021 and changes during the period ended December 31, 2021 are as follows:
| | | | | | | | | | | |
| RSUs |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| (Shares in thousands) |
Unvested at January 1 | 1,503 | | | $ | 107.62 | |
Granted | 35 | | | 208.18 | |
Vested | (176) | | | 34.71 | |
Forfeited | (5) | | | 144.39 | |
Unvested at May 24, 2021 prior to the Spin-off adjustment | 1,357 | | | 120.01 | |
Unvested at May 25, 2021 after the Spin-off adjustment | 2,039 | | | 79.85 | |
Granted | 30 | | | 127.77 | |
Vested | (136) | | | 69.80 | |
Forfeited | (387) | | | 86.47 | |
Unvested at December 31 | 1,546 | | | $ | 80.38 | |
In connection to the Spin-off, all RSU awards outstanding immediately prior to the Spin-off were converted into a new RSU award with the number of shares under each new award adjusted by a ratio of 1.503 to preserve their fair value immediately before and immediately after the conversion with the same terms and conditions (including applicable vesting requirements) of the original award.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
RSU awards are settled on a net basis, with the award holder entitled to receive IAC shares equal to the number of RSUs vesting less a number of shares with a value equal to the required cash tax withholding payment, which will be paid by the Company. The number of IAC common shares that would be required to net settle RSUs outstanding at February 11, 2022 is 0.9 million shares. In addition, withholding taxes, which will be paid by the Company on behalf of the employees upon vesting, would have been $108.6 million at February 11, 2022, assuming a 50% withholding rate.
The weighted average fair value of RSUs granted for the year ended December 31, 2021 and for the period from the MTCH Separation through December 31, 2020, based on market prices of IAC's common stock on the grant date was $171.53 and $128.82, respectively.
The total fair value of RSUs that vested for the year ended December 31, 2021 and for the period from the MTCH Separation through December 31, 2020 was $15.9 million and $3.8 million, respectively. During 2020, all outstanding MSUs vested. The total fair value of MSUs that vested for the period from the MTCH Separation through December 31, 2020 was $43.6 million.
IAC Stock Options
Stock options outstanding at December 31, 2021 and changes during the period ended December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term in Years | | Aggregate Intrinsic Value | |
| (Shares and intrinsic value in thousands) |
Options Outstanding at January 1 | 3,909 | | | $ | 21.08 | | | | | | |
Granted | — | | | — | | | | | | |
Exercised | (89) | | | 19.09 | | | | | | |
Forfeited | — | | | — | | | | | | |
Expired | — | | | — | | | | | | |
Options outstanding at May 24, 2021 prior to the Spin-off adjustment | 3,820 | | | 21.12 | | | | | | |
Options outstanding at May 25, 2021 after the Spin-off adjustment | 3,820 | | | 14.05 | | | | | | |
Granted | — | | | — | | | | | | |
Exercised | (924) | | | 14.27 | | | | | | |
Forfeited | — | | | — | | | | | | |
Expired | — | | | — | | | | | | |
Options Outstanding at December 31 | 2,896 | | | $ | 13.98 | | | 3.9 | | $ | 338,005 | | |
Options exercisable | 2,896 | | | $ | 13.98 | | | 3.9 | | $ | 338,005 | | |
In connection with the Spin-off, IAC denominated stock options were converted into stock options to purchase IAC common stock and stock options to purchase Vimeo common stock in a manner that preserved the spread value of the stock options immediately before and immediately after the adjustment, with the allocation between the two stock options based on the value of a share of IAC common stock relative to the value of a share of Vimeo common stock multiplied by the spin-off exchange ratio of 1.6235.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The aggregate intrinsic value in the table above represents the difference between IAC's closing stock price on the last trading day of 2021 and the exercise price, multiplied by the number of in-the-money options that would have been exercised had all option holders exercised their options on December 31, 2021. The total intrinsic value of IAC stock options exercised during the year ended December 31, 2021 and for the period from the MTCH Separation through December 31, 2020 is $135.1 million and $74.8 million, respectively.
The following table summarizes the information about stock options outstanding and exercisable at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Options Exercisable |
Range of Exercise Prices | Outstanding at December 31, 2021 | | Weighted- Average Remaining Contractual Life in Years | | Weighted- Average Exercise Price | | Exercisable at December 31, 2021 | | Weighted- Average Remaining Contractual Life in Years | | Weighted- Average Exercise Price |
| (Shares in thousands) |
Less than $10.00 | 567 | | | 4.1 | | $ | 8.57 | | | 567 | | | 4.1 | | $ | 8.57 | |
$10.01 to $15.00 | 712 | | | 3.3 | | 13.60 | | | 712 | | | 3.3 | | 13.60 | |
$15.01 to $20.00 | 1,613 | | | 4.1 | | 16.04 | | | 1,613 | | | 4.1 | | 16.04 | |
Greater than $20.01 | 4 | | | 5.6 | | 21.17 | | | 4 | | | 5.6 | | 21.17 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 2,896 | | | 3.9 | | $ | 13.98 | | | 2,896 | | | 3.9 | | $ | 13.98 | |
The fair value of stock option awards, with the exception of market-based awards, is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility, risk-free interest rate and expected term.
The Company has the discretion to settle IAC stock options net of withholding tax and exercise price or require the award holder to pay its share of the withholding tax, which he or she may do so by selling IAC common shares. The aggregate intrinsic value of IAC's stock options outstanding as of February 11, 2022, is $345.6 million. Assuming all stock options outstanding on February 11, 2022 were net settled on that date, the Company would have issued 1.3 million common shares and would have remitted $172.8 million in cash for withholding taxes (assuming a 50% withholding rate). Assuming all stock options outstanding on February 11, 2022 were settled through the issuance of a number of IAC common shares equal to the number of stock options exercised, the Company would have issued 2.9 million common shares and would have received $40.5 million in cash proceeds.
Stock-based Awards Denominated in the Shares of Certain Subsidiaries
Non-publicly-traded Subsidiaries
The following description excludes awards denominated in Angi Inc. shares.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The Company has granted stock settled stock appreciation rights to employees and management that are denominated in the equity of certain non-publicly-traded subsidiaries of the Company. These equity awards vest over a period of years or upon the occurrence of certain prescribed events. The value of the stock settled stock appreciation rights is tied to the value of the common stock of these subsidiaries. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price. These interests can have significant value in the event of significant appreciation. The fair value of these interest is generally determined by the Board of Directors of the applicable subsidiary, which will occur at various dates through 2029. These equity awards are settled on a net basis, with the award holder entitled to receive a payment in IAC common shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment, which will be paid by the Company. The number of IAC common shares ultimately needed to settle these awards may vary significantly from the estimated number below as a result of both movements in our stock price and a determination of fair value of the relevant subsidiary that is different than our estimate. The expense associated with these equity awards is initially measured at fair value at the grant date and is expensed as stock-based compensation over the vesting term. The number of IAC common shares that would be required to settle these interests at current estimated fair values, including vested and unvested interests, at February 11, 2022 is 0.2 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon exercise, would have been $26.8 million at February 11, 2022, assuming a 50% withholding rate.
Angi Inc.
Angi Inc. currently settles all of its equity awards on a net basis. Certain Angi Inc. stock appreciation rights issued prior to the transaction resulting in formation of Angi Inc. in 2017 (the "Combination") are settleable in either shares of Angi Inc. common stock or shares of IAC common stock at IAC's option. If settled in IAC common stock, Angi Inc. reimburses IAC in shares of its common stock. The aggregate intrinsic value of these awards outstanding at February 11, 2022 is $5.3 million, assuming these awards were net settled on that date, the withholding taxes that would be payable by Angi Inc. are $2.7 million, assuming a 50% withholding rate, and Angi Inc. would have issued 0.3 million shares. Certain equity awards denominated in shares of Angi Inc.'s subsidiaries may be settled in either shares of Angi Inc. common stock or IAC common stock at IAC's option. To the extent shares of IAC common stock are issued in settlement of these awards, Angi Inc. is obligated to reimburse IAC for the cost of those shares by issuing shares of Angi Inc. common stock. The aggregate intrinsic value of all other Angi Inc. equity awards, including stock options, RSUs and subsidiary denominated equity at February 11, 2022 is $131.7 million; assuming these awards were net settled on that date, the withholding taxes that would be payable are $65.0 million, assuming a 50% withholding rate, and Angi Inc. would have issued 7.7 million shares of its common stock.
Modification of awards
During 2020, the Company modified certain equity awards in connection with the MTCH Separation and recognized a modification charge of $56.6 million, of which $55.7 million was recognized as stock-based compensation expense in the year ended December 31, 2020 and the remaining charge will be recognized over the vesting period of the modified awards. In addition, certain other equity awards were modified during 2020 resulting in modification charges of $20.5 million in the aggregate, of which $14.1 million was recorded by Angi Inc.
During 2019, certain equity awards were modified resulting in modification charges of $12.9 million.
In connection with the Combination, the previously issued HomeAdvisor (US) stock appreciation rights were converted into Angi Inc. equity awards resulting in a modification charge of $217.7 million of which $0.9 million, $21.1 million and $29.0 million were recognized as stock-based compensation expense in the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2021, there is no expense remaining related to this modification.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 13—SEGMENT INFORMATION
The overall concept that the Company employs in determining its operating segments is to present the financial information in a manner consistent with the chief operating decision maker's view of the businesses. In addition, we consider how the businesses are organized as to segment management and the focus of the businesses with regards to the types of services or products offered or the target market. Operating segments are combined for reporting purposes if they meet certain aggregation criteria, which principally relate to the similarity of their economic characteristics, which is the case for the Desktop and Ask Media Group operating segments in the Search reportable segment, or, in the case of the Emerging & Other reportable segment, do not meet the quantitative thresholds that require presentation as separate reportable segments. The determination of operating segments for Meredith is not yet complete; therefore, it is possible that a lower level of segment reporting may be required for Meredith.
The following table presents revenue by reportable segment:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Revenue: | | | | | |
Dotdash Meredith | | | | | |
Digital | $ | 367,134 | | | $ | 213,753 | | | $ | 167,594 | |
Print | 92,002 | | | — | | | — | |
Intra-segment eliminations(a) | (2,863) | | | — | | | — | |
Total Dotdash Meredith | 456,273 | | | 213,753 | | | 167,594 | |
Angi Inc. | 1,685,438 | | | 1,467,925 | | | 1,326,205 | |
Search | 873,346 | | | 613,274 | | | 742,184 | |
Emerging & Other | 685,175 | | | 469,759 | | | 274,107 | |
Inter-segment eliminations | (605) | | | (175) | | | (110) | |
Total | $ | 3,699,627 | | | $ | 2,764,536 | | | $ | 2,509,980 | |
The following table presents the revenue of the Company's segments disaggregated by type of service:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Dotdash Meredith | | | | | |
Digital: | | | | | |
Display advertising revenue | $ | 236,660 | | | $ | 137,455 | | | $ | 126,350 | |
Performance marketing revenue | 116,195 | | | 76,298 | | | 41,244 | |
Licensing and other revenue | 14,279 | | | — | | | — | |
Total digital revenue | 367,134 | | | 213,753 | | | 167,594 | |
Print: | | | | | |
Subscription revenue | 34,634 | | | — | | | — | |
Newsstand revenue | 19,183 | | | — | | | — | |
Project and other revenue | 16,414 | | | — | | | — | |
Advertising revenue | 13,678 | | | — | | | — | |
Performance marketing revenue | 8,093 | | | — | | | — | |
Total print revenue | 92,002 | | | — | | | — | |
Intra-segment eliminations(a) | (2,863) | | | — | | | — | |
Total Dotdash Meredith revenue | $ | 456,273 | | | $ | 213,753 | | | $ | 167,594 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
| | | | | |
(a) Includes $2.8 million of intra-segment eliminations related to digital performance marketing revenue. |
| | | | | |
Angi Inc. | | | | | |
North America | | | | | |
Angi Ads and Leads: | | | | | |
Consumer connection revenue(b) | $ | 896,711 | | | $ | 899,175 | | | $ | 867,307 | |
Advertising revenue(c) | 252,010 | | | 226,505 | | | 214,259 | |
Membership subscription revenue(d) | 68,062 | | | 74,073 | | | 92,975 | |
Other revenue | 27,812 | | | 33,136 | | | 23,844 | |
Total Angi Ads and Leads revenue | 1,244,595 | | | 1,232,889 | | | 1,198,385 | |
Angi Services revenue(e) | 357,976 | | | 162,539 | | | 51,507 | |
Total North America revenue | 1,602,571 | | | 1,395,428 | | | 1,249,892 | |
Europe | | | | | |
Consumer connection revenue(f) | 68,686 | | | 57,692 | | | 59,611 | |
Service professional membership subscription revenue | 12,939 | | | 13,091 | | | 14,231 | |
Advertising and other revenue | 1,242 | | | 1,714 | | | 2,471 | |
Total Europe revenue | 82,867 | | | 72,497 | | | 76,313 | |
Total Angi Inc. revenue | $ | 1,685,438 | | | $ | 1,467,925 | | | $ | 1,326,205 | |
| | | | | |
(b) Includes fees paid by service professionals for consumer matches through Angi Ads and Leads platforms. |
(c) Includes revenue from service professionals under contract for advertising. |
(d) Includes membership subscription revenue from service professionals and consumers. |
(e) Includes revenue from pre-priced offerings and revenue from Angi Roofing. |
(f) Includes fees paid by service professionals for consumer matches. |
|
Search | | | | | |
Advertising revenue: | | | | | |
Google advertising revenue | $ | 675,892 | | | $ | 506,077 | | | $ | 678,438 | |
Non-Google advertising revenue | 183,427 | | | 90,286 | | | 47,583 | |
Total advertising revenue | 859,319 | | | 596,363 | | | 726,021 | |
Other revenue | 14,027 | | | 16,911 | | | 16,163 | |
Total Search revenue | $ | 873,346 | | | $ | 613,274 | | | $ | 742,184 | |
| | | | | |
Emerging & Other | | | | | |
Subscription revenue | $ | 367,159 | | | $ | 303,482 | | | $ | 194,362 | |
Marketplace revenue | 243,816 | | | 138,726 | | | 38,950 | |
Media production and distribution revenue | 44,517 | | | 3,585 | | | 8,897 | |
Advertising revenue: | | | | | |
Non-Google advertising revenue | 19,047 | | | 16,236 | | | 23,372 | |
Google advertising revenue | 2,981 | | | 3,130 | | | 4,486 | |
Total advertising revenue | 22,028 | | | 19,366 | | | 27,858 | |
Service and other revenue | 7,655 | | | 4,600 | | | 4,040 | |
Total Emerging & Other revenue | $ | 685,175 | | | $ | 469,759 | | | $ | 274,107 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Revenue: | | | | | |
United States | $ | 3,184,653 | | | $ | 2,309,504 | | | $ | 1,997,662 | |
All other countries | 514,974 | | | 455,032 | | | 512,318 | |
Total | $ | 3,699,627 | | | $ | 2,764,536 | | | $ | 2,509,980 | |
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Long-lived assets (excluding goodwill, intangible assets and ROU assets): | | | |
United States | $ | 562,628 | | | $ | 263,620 | |
All other countries | 7,897 | | | 11,310 | |
Total | $ | 570,525 | | | $ | 274,930 | |
The following tables present operating income (loss) and Adjusted EBITDA by reportable segment:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Operating income (loss): | | | | | |
Dotdash Meredith | | | | | |
Digital | $ | 73,980 | | | $ | 50,241 | | | $ | 29,021 | |
Print | (6,527) | | | — | | | — | |
Other | (60,277) | | | — | | | — | |
Total Dotdash Meredith | 7,176 | | | 50,241 | | | 29,021 | |
Angi Inc. | (76,513) | | | (6,368) | | | 38,645 | |
Search | 108,334 | | | (248,711) | | | 122,347 | |
Emerging & Other | (22,738) | | | (70,896) | | | (21,790) | |
Corporate | (153,326) | | | (261,929) | | | (162,489) | |
Total | $ | (137,067) | | | $ | (537,663) | | | $ | 5,734 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Adjusted EBITDA:(g) | | | | | |
Dotdash Meredith | | | | | |
Digital | $ | 91,179 | | | $ | 66,206 | | | $ | 39,601 | |
Print | $ | 2,639 | | | $ | — | | | $ | — | |
Other | $ | (60,196) | | | $ | — | | | $ | — | |
Angi Inc. | $ | 27,865 | | | $ | 172,804 | | | $ | 202,297 | |
Search | $ | 108,381 | | | $ | 51,344 | | | $ | 124,163 | |
Emerging & Other | $ | 33,383 | | | $ | (37,699) | | | $ | (28,368) | |
Corporate | $ | (95,985) | | | $ | (147,433) | | | $ | (88,465) | |
_______________________________________________________________________________
(g) The Company's primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets, if applicable, and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following tables reconcile operating (loss) income for the Company's reportable segments and net earnings attributable to IAC shareholders to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | | | Adjusted EBITDA |
| (In thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | 73,980 | | | $ | 1,438 | | | $ | 4,257 | | | $ | 11,512 | | | $ | (8) | | | | | $ | 91,179 | |
Print | (6,527) | | | $ | — | | | $ | 1,827 | | | $ | 7,339 | | | $ | — | | | | | $ | 2,639 | |
Other | (60,277) | | | $ | — | | | $ | 81 | | | $ | — | | | $ | — | | | | | $ | (60,196) | |
Angi Inc. | (76,513) | | | $ | 28,702 | | | $ | 59,246 | | | $ | 16,430 | | | $ | — | | | | | $ | 27,865 | |
Search | 108,334 | | | $ | — | | | $ | 47 | | | $ | — | | | $ | — | | | | | $ | 108,381 | |
Emerging & Other | (22,738) | | | $ | 101 | | | $ | 1,462 | | | $ | 39,558 | | | $ | 15,000 | | | | | $ | 33,383 | |
Corporate (h) | (153,326) | | | $ | 49,246 | | | $ | 8,095 | | | $ | — | | | $ | — | | | | | $ | (95,985) | |
Total | (137,067) | | | | | | | | | | | | | |
Interest expense | (34,264) | | | | | | | | | | | | | |
Unrealized gain on investment in MGM | 789,283 | | | | | | | | | | | | | |
Other income, net | 111,854 | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | 729,806 | | | | | | | | | | | | | |
Income tax provision | (138,990) | | | | | | | | | | | | | |
Net earnings from continuing operations | 590,816 | | | | | | | | | | | | | |
Loss from discontinued operations, net of tax | (1,831) | | | | | | | | | | | | | |
Net earnings | 588,985 | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 8,562 | | | | | | | | | | | | | |
Net earnings attributable to IAC shareholders | $ | 597,547 | | | | | | | | | | | | | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Arrangements | | Goodwill Impairment | | Adjusted EBITDA |
| (In thousands) |
Dotdash Meredith | $ | 50,241 | | | $ | — | | | $ | 1,794 | | | $ | 14,171 | | | $ | — | | | $ | — | | | $ | 66,206 | |
Angi Inc. | (6,368) | | | $ | 83,649 | | | $ | 52,621 | | | $ | 42,902 | | | $ | — | | | $ | — | | | $ | 172,804 | |
Search | (248,711) | | | $ | — | | | $ | 2,709 | | | $ | 32,200 | | | $ | — | | | $ | 265,146 | | | $ | 51,344 | |
Emerging & Other | (70,896) | | | $ | 100 | | | $ | 2,449 | | | $ | 37,566 | | | $ | (6,918) | | | $ | — | | | $ | (37,699) | |
Corporate (h) | (261,929) | | | $ | 105,246 | | | $ | 9,250 | | | $ | — | | | $ | — | | | $ | — | | | $ | (147,433) | |
Total | (537,663) | | | | | | | | | | | | | |
Interest expense | (16,166) | | | | | | | | | | | | | |
Unrealized gain on investment in MGM | 840,550 | | | | | | | | | | | | | |
Other expense, net | (42,561) | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | 244,160 | | | | | | | | | | | | | |
Income tax benefit | 45,707 | | | | | | | | | | | | | |
Net earnings from continuing operations | 289,867 | | | | | | | | | | | | | |
Loss from discontinued operations, net of tax | (21,281) | | | | | | | | | | | | | |
Net earnings | 268,586 | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 1,140 | | | | | | | | | | | | | |
Net earnings attributable to IAC shareholders | $ | 269,726 | | | | | | | | | | | | | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Goodwill Impairment | | Adjusted EBITDA |
| (In thousands) |
Dotdash Meredith | $ | 29,021 | | | $ | — | | | $ | 974 | | | $ | 9,606 | | | $ | — | | | $ | — | | | $ | 39,601 | |
Angi Inc. | 38,645 | | | $ | 68,255 | | | $ | 39,915 | | | $ | 55,482 | | | $ | — | | | $ | — | | | $ | 202,297 | |
Search | 122,347 | | | $ | — | | | $ | 1,816 | | | $ | — | | | $ | — | | | $ | — | | | $ | 124,163 | |
Emerging & Other | (21,790) | | | $ | — | | | $ | 715 | | | $ | 9,127 | | | $ | (19,738) | | | $ | 3,318 | | | $ | (28,368) | |
Corporate (h) | (162,489) | | | $ | 61,973 | | | $ | 12,051 | | | $ | — | | | $ | — | | | $ | — | | | $ | (88,465) | |
Total | 5,734 | | | | | | | | | | | | | |
Interest expense | (11,904) | | | | | | | | | | | | | |
Other income, net | 40,487 | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | 34,317 | | | | | | | | | | | | | |
Income tax benefit | 47,349 | | | | | | | | | | | | | |
Net earnings from continuing operations | 81,666 | | | | | | | | | | | | | |
Loss from discontinued operations, net of tax | (49,483) | | | | | | | | | | | | | |
Net earnings | 32,183 | | | | | | | | | | | | | |
Net earnings attributable to noncontrolling interests | (9,288) | | | | | | | | | | | | | |
Net earnings attributable to IAC shareholders | $ | 22,895 | | | | | | | | | | | | | |
_______________________________________________________________________________
(h) Includes stock-based compensation expense for awards denominated in the shares of certain subsidiaries of the Company.
The following table presents capital expenditures by reportable segment:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Capital expenditures: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Dotdash Meredith | $ | 4,823 | | | $ | 5,445 | | | $ | — | |
Angi Inc. | 70,215 | | | 52,488 | | | 68,804 | |
Search | 178 | | | 47 | | | 43 | |
Emerging & Other | 894 | | | 1,363 | | | 387 | |
Corporate | 14,100 | | | 1,383 | | | 25,863 | |
Total | $ | 90,210 | | | $ | 60,726 | | | $ | 95,097 | |
NOTE 14—LEASES
The Company leases office space, land, data center facilities and equipment used in connection with its operations under various operating leases, the majority of which contain escalation clauses.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
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 these 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 certain of its subsidiaries' respective incremental borrowing rates on the lease commencement date, January 1, 2019 for leases that commenced prior to that date, or, in the case of acquisitions subsequent to January 1, 2019, the date of acquisition (see "Note 5—Business Combinations" for additional information regarding the provisional nature of amounts recorded for the acquisition of Meredith). 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(s). Lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less ("short-term leases") are not recorded on the balance sheet. 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.
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
Leases | | Balance Sheet Classification | | 2021 | | 2020 |
| | | | (In thousands) |
Assets: | | | | | | |
Right-of-use assets(a) | | Other non-current assets | | $ | 498,337 | | | $ | 170,153 | |
| | | | | | |
Liabilities: | | | | | | |
Current lease liabilities | | Accrued expenses and other current liabilities | | $ | 63,521 | | | $ | 27,143 | |
Long-term lease liabilities | | Other long-term liabilities | | 578,272 | | | 205,362 | |
Total lease liabilities(a) | | | | $ | 641,793 | | | $ | 232,505 | |
_____________________
(a) The acquisition of Meredith resulted in increases of ROU assets and lease liabilities of $358.6 million and $434.8 million, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
Lease Expense | | Income Statement Classification | | 2021 | | 2020 | | 2019 |
| | | | (In thousands) |
Fixed lease expense | | Cost of revenue | | $ | 1,707 | | | $ | 2,183 | | | $ | 547 | |
Fixed lease expense | | Selling and marketing expense | | 9,443 | | | 12,591 | | | 10,749 | |
Fixed lease expense | | General and administrative expense | | 31,104 | | | 20,923 | | | 13,786 | |
Fixed lease expense | | Product development expense | | 1,756 | | | 3,016 | | | 1,502 | |
Total fixed lease expense(b) | | | | 44,010 | | | 38,713 | | | 26,584 | |
Variable lease expense | | Cost of revenue | | — | | | — | | | 83 | |
Variable lease expense | | Selling and marketing expense | | 1,087 | | | 2,314 | | | 1,573 | |
Variable lease expense | | General and administrative expense | | 8,176 | | | 7,314 | | | 5,657 | |
Variable lease expense | | Product development expense | | 639 | | | 934 | | | 391 | |
Total variable lease expense | | | | 9,902 | | | 10,562 | | | 7,704 | |
Net lease expense | | | | $ | 53,912 | | | $ | 49,275 | | | $ | 34,288 | |
_____________________
(b) Includes approximately $10.5 million, $5.8 million and $2.6 million of lease impairment charges, $1.4 million, $2.5 million and $2.0 million of short-term lease expense, and $6.7 million, $5.3 million and $7.4 million of sublease income, for the years ended December 31, 2021, 2020 and 2019, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Maturities of lease liabilities at December 31, 2021(c):
| | | | | | | | |
Years Ended December 31, | | In thousands |
2022 | | $ | 95,944 | |
2023 | | 95,764 | |
2024 | | 94,183 | |
2025 | | 85,773 | |
2026 | | 81,372 | |
Thereafter | | 472,535 | |
Total | | 925,571 | |
Less: Interest | | 283,778 | |
Present value of lease liabilities | | $ | 641,793 | |
_____________________
(c) Lease payments exclude $1.2 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 at December 31, 2021 and 2020:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Remaining lease term | | 11.8 years | | 15.5 years |
Discount rate | | 5.54 | % | | 5.67 | % |
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| | (In thousands) |
Other Information: | | | | |
Right-of-use assets obtained in exchange for lease liabilities (d) | | $ | 442,205 | | | $ | 80,314 | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 44,659 | | | $ | 41,377 | |
_____________________
(d) Includes $437.7 million related to Meredith as of the date of its acquisition..
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 15—COMMITMENTS AND CONTINGENCIES
Commitments
The Company has entered into certain off-balance sheet commitments that require the future purchase of services ("purchase obligations") to be used in the normal course of operations. Future payments under noncancelable unconditional purchase obligations at December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Commitment Expiration Per Period |
| Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | Total Amounts Committed |
| (In thousands) |
Purchase obligations | $ | 74,897 | | | $ | 16,040 | | | $ | 474 | | | $ | — | | | $ | 91,411 | |
Purchase obligations include payments of (i) $26.4 million related to advertising that will run in 2022, (ii) $9.1 million related to a cloud computing arrangement, (iii) $7.1 million related to email and office productivity tools, (iv) $6.1 million related to communication spend, (v) $4.2 million related to research tools, and (vi) $3.1 million related to background check services.
Lease Guarantees
In connection with the acquisition of Meredith, Dotdash Meredith guarantees a lease through January 2023 and another through November 2030. The carrying value of those guarantees is recorded in "Other long-term liabilities" in the balance sheet and was $1.9 million at December 31, 2021. The maximum obligation for which the Company would be liable if the primary obligors fail to perform under the lease agreements was $11.1 million at December 31, 2021.
Contingencies
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where the Company believes an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See "Note 3—Income Taxes" for additional information related to income tax contingencies. Tinder Optionholder Litigation against IAC and Match Group
In August 2018, ten then-current and former employees of Match Group’s Tinder business filed a lawsuit in New York state court against IAC and Match Group. See Sean Rad et al. v. IAC/InterActiveCorp and Match Group, Inc., No. 654038/2018 (Supreme Court, New York County). The complaint alleged that in 2017, the defendants: (i) wrongfully interfered with a contractually established process for the independent valuation of Tinder by two investment banks, resulting in a substantial undervaluation of Tinder and a consequent underpayment to the plaintiffs upon exercise of their stock options, and (ii) then wrongfully merged Tinder into Match Group, thereby depriving the plaintiffs of their contractual right to later valuations of Tinder on a stand‑alone basis. The complaint asserted inter alia claims for breach of contract and interference with contractual relations and prospective economic advantage and sought compensatory damages in the amount of at least $2 billion, as well as punitive damages. Shortly after filing suit, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
In October 2018, the defendants filed a motion to dismiss the complaint on various grounds, including that the 2017 valuation of Tinder by the investment banks was an expert determination any challenge to which is time-barred under applicable law. In June 2019, the court issued a decision and order granting the motion in part but leaving the plaintiffs’ principal claims based upon the 2017 valuation and subsequent merger intact. The defendants appealed, and in May 2020, the Appellate Division, First Department, reaffirmed the lower court's decision on different grounds.
In July 2020, the four individuals who earlier had discontinued their claims in the New York lawsuit commenced separate arbitration proceedings against IAC and Match Group before the American Arbitration Association in California, asserting the same claims and seeking the same relief as the six remaining plaintiffs in the New York lawsuit. In April 2021, the respondents in the California arbitration filed a motion for summary judgment dismissing the claimants' merger-related claims; in August 2021, the arbitrator issued an order granting the motion.
In July 2021, the defendants in the New York lawsuit filed a motion for summary judgment. In October 2021, the court issued an order granting the motion in part and denying it in part. The court dismissed the plaintiffs’ merger-related contract claims and remaining tort claims, leaving for trial only the claims for breach of contract arising out of the 2017 valuation of Tinder by the independent investment banks. These claims centered on whether the investment banks were provided with adequate information to conduct their valuation and whether plaintiff Rad had adequate access to the banks and to Tinder management during the valuation process.
A jury trial in the New York lawsuit commenced on November 8, 2021. On December 1, 2021, the parties executed and presented to the court a binding settlement term sheet, pursuant to which Match Group would pay the sum of $441 million to the plaintiffs and the claimants in the California arbitration in full settlement of all claims against all defendants and respondents, including IAC, in those proceedings and in exchange for appropriate releases; the court approved the term sheet and discharged the jury. The settlement does not obligate IAC to make any payment. The parties currently are negotiating the terms of a definitive settlement agreement as called for by the term sheet.
Pursuant to the Transaction Agreement (as defined in Note 1—Organization-MTCH Separation), Match Group has agreed to indemnify the Company for matters relating to any business of Match Group, including indemnifying the Company for costs related to the matter described above.
NOTE 16—RELATED PARTY TRANSACTIONS
Relationship with Old IAC prior to the MTCH Separation
The Company’s statement of operations for the years ended December 31, 2020 and 2019 includes allocations of costs, including stock-based compensation expense, related to Old IAC’s accounting, treasury, legal, tax, corporate support and internal audit functions prior to the MTCH Separation. Old IAC historically allocated costs related to its accounting, treasury, legal, tax, corporate support and internal audit functions that were incurred at the Old IAC legal entity level to its publicly traded subsidiaries, Old MTCH and Angi Inc., for any services provided under the applicable services agreements. The remaining unallocated expenses of Old IAC related to its accounting, treasury, legal, tax, corporate support and internal audit functions were allocated to the Company. Allocated costs, inclusive of stock-based compensation expense, in 2020 prior to the MTCH Separation, were $85.5 million. Allocated costs, inclusive of stock-based compensation expense, were $146.0 million for the year ended December 31, 2019. It is not practicable to determine the actual expenses that would have been incurred for these services had the Company operated as a standalone entity during the periods presented. Management considers the allocation method to be reasonable.
The portion of interest income reflected in the statement of operations that is related party in nature was $0.1 million in 2020 prior to the MTCH Separation, and $0.4 million for the year ended December 31, 2019, and is included in ‘‘Interest income, net’’ in the table below.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table summarizes the components of the net increase in Old IAC’s investment in the Company for the periods prior to the MTCH Separation:
| | | | | | | | | | | |
| Six Months Ended June 30, 2020, the date of the MTCH Separation | | Year Ended December 31, 2019 |
| |
| (In thousands) |
Cash transfers from Old IAC related to its centrally managed U.S. treasury management function, acquisitions and cash expenses paid by Old IAC on behalf of the Company, net | $ | (1,742,854) | | | $ | (182,382) | |
Contribution of buildings to Match Group | 34,973 | | | — | |
Taxes | 34,436 | | | (1,874) | |
Allocation of costs from Old IAC | (12,652) | | | (80,143) | |
Interest income, net | 102 | | | 420 | |
Net increase in Old IAC's investment in the Company prior to the MTCH Separation | $ | (1,685,995) | | | $ | (263,979) | |
Notes Receivable—Related Party
During 2019, the Company, through two subsidiaries, entered into loan agreements with Old IAC for cash transfers to Old IAC under its centrally managed U.S. treasury function. During the first quarter of 2020, the outstanding balance, which was $55.3 million at December 31, 2019, was repaid.
On February 11, 2020, the Company, through a subsidiary, entered into a loan agreement with Old IAC for cash transfers to Old IAC under its centrally managed U.S. treasury function. During the second quarter of 2020, the outstanding balance, which was $27.2 million at March 31, 2020, was repaid.
IAC and Old MTCH
Prior to the MTCH Separation, for the six months ended June 30, 2020, the date of the MTCH Separation, and for the year ended December 31, 2019, Old MTCH incurred rent expense of $1.4 million and $5.8 million respectively, for leasing office space for certain of its businesses at properties owned by the Company. The amounts were paid in full by Old MTCH at the date of the MTCH Separation and at December 31, 2019, respectively. After the MTCH Separation, Match Group is no longer a related party.
On January 31, 2020, Old IAC contributed two office buildings in Los Angeles to Old MTCH, which are primarily occupied and were previously leased from the Company by Tinder. In connection with this contribution, the Company entered into a lease with Old MTCH for office space, which the Company currently occupies, in one of the buildings and for the six months ended June 30, 2020, the date of the MTCH Separation, the Company paid Old MTCH less than $0.1 million under the lease. Old MTCH issued 1.4 million shares of Old MTCH common stock to Old IAC for the buildings.
IAC and Angi Inc.
Old IAC and Angi Inc., in connection with the Combination, entered into a contribution agreement; an investor rights agreement; a services agreement; a tax sharing agreement; and an employee matters agreement. Upon the MTCH Separation, Old IAC assigned these agreements to the Company.
For the year ended December 31, 2021, 0.2 million shares of Angi Inc. Class B common stock were issued to a subsidiary of the Company pursuant to the employee matters agreement as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by Angi Inc. employees. For the years ended December 31, 2020 and 2019, 0.3 million and 0.5 million shares, respectively, of Angi Inc. Class B common stock were issued to a subsidiary of the Company pursuant to the employee matters agreement as reimbursement for shares of IAC common stock, issued for periods after the MTCH Separation, and Old IAC common stock, issued for periods prior to the MTCH Separation, in connection with the exercise and vesting of IAC and Old IAC equity awards held by Angi Inc. employees.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the year ended December 31, 2021, 2.6 million shares of Angi Inc. Class A common stock were issued to a subsidiary of the Company pursuant to the employee matters agreement as reimbursement for IAC common stock issued in connection with the exercise and settlement of certain Angi Inc. stock appreciation rights. There were no shares of Angi Inc. Class A common stock issued to IAC during the years ended December 31, 2020 and 2019, respectively.
IAC and Vimeo
Following the Spin-off, the relationship between IAC and Vimeo is governed by a number of agreements. These agreements include a separation agreement; a tax matters agreement; a transition services agreement; an employee matters agreement; and an office lease agreement. The Company and Vimeo are related parties because Mr. Diller is the beneficial owner of more than 10% of the voting interests in both IAC and Vimeo.
At December 31, 2021, Vimeo had no outstanding payables or receivables to or due from the Company pursuant to the tax sharing agreement. There were no payments to or refunds from Vimeo pursuant to this agreement for the period of May 25, 2021 through December 31, 2021.
For the period of May 25, 2021 through December 31, 2021, Vimeo was charged $0.9 million by IAC for services rendered pursuant to the transition services agreement. At December 31, 2021, there were no outstanding receivables or payables pursuant to the transition services agreement.
Vimeo has an outstanding payable due to the Company of $6.4 million at December 31, 2021 related primarily to reimbursements due to the Company for the exercise of Vimeo equity awards held by employees of the Company and Vimeo’s participation in the Company’s employee benefit plans. This amount is included in “Other current assets" in the balance sheet at December 31, 2021. This amount was paid in full in January 2022.
For the period of May 25, 2021 through December 31, 2021, Vimeo was charged $2.6 million of rent pursuant to the lease agreement. At December 31, 2021 there were no outstanding receivables due from Vimeo pursuant to the lease agreement.
IAC and Expedia
The Company and Expedia each have a 50% ownership interest in three aircraft that may be used by both companies. In the third quarter of 2021, the Company and Expedia accepted delivery of the corporate aircraft that the Company and Expedia had entered into an agreement in 2019 to jointly acquire for a total cost of $71.4 million (including purchase price and related costs), with each company bearing 50% of such cost. In connection with the purchase agreement the Company paid approximately $23 million in 2019 and approximately $12.7 million in the third quarter of 2021 upon delivery of the new aircraft. Members of the aircraft flight crews are employed by an entity in which the Company and Expedia each have a 50% ownership interest. The Company and Expedia have agreed to share costs relating to flight crew compensation and benefits pro-rata according to each company’s respective usage of the aircraft, for which they are separately billed by the entity described above. In addition, in December 2021, the Company and Expedia entered into agreements pursuant to which Expedia may use additional aircraft owned by a subsidiary of the Company on a cost basis. No payments have been made by Expedia pursuant to this arrangement to date. The Company and Expedia are related parties because Mr. Diller serves as Chairman and Senior Executive of both IAC and Expedia. For the years ended December 31, 2021, 2020 and 2019, total payments made to this entity by the Company were not material.
NOTE 17—PENSION AND POSTRETIREMENT BENEFIT PLANS
Pension and Postretirement Plans
In connection with the acquisition of Meredith, the Company assumed the obligations under Meredith’s various pension plans. The plans include U.S. noncontributory pension plans that covers substantially all employees who were employed by Meredith prior to January 1, 2018. There are two international pension plans in the U.K.; the international plans have no active participants. These domestic and international plans include qualified (funded) plans as well as nonqualified (unfunded) plans. These plans provide participating employees with retirement benefits in accordance with benefit provision formulas. The nonqualified pension plans provide retirement benefits to certain highly compensated employees. The Company also assumed Meredith's defined healthcare and life insurance plans that provide benefits to eligible retirees.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Obligations and Funded Status
The following tables present changes in, and components of, the Company's net assets/liabilities for pension and other postretirement benefits:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Pension | | Postretirement |
| Domestic | | International | | Domestic |
| (in thousands) |
Change in benefit obligation | | | | | |
Benefit obligation, beginning of year | $ | — | | | $ | — | | | $ | — | |
Acquisitions(a) | 154,920 | | | 850,774 | | | 10,923 | |
Service cost | 368 | | | — | | | 1 | |
Interest cost | 224 | | | 981 | | | 22 | |
| | | | | |
| | | | | |
Net actuarial gain | (158) | | | (54,660) | | | (132) | |
Benefits paid (including lump sums) | (339) | | | (1,529) | | | (6) | |
Settlements | — | | | (9,361) | | | — | |
Contractual termination benefits | 11,785 | | | — | | | — | |
Foreign currency exchange rate impact | — | | | 4,458 | | | — | |
Benefit obligation, end of year | 166,800 | | | 790,663 | | | 10,808 | |
Change in plan assets | | | | | |
Fair value of plan assets, beginning of year | — | | | — | | | — | |
Acquisitions(a) | 129,765 | | | 1,053,902 | | | — | |
Actual return on plan assets | 2,886 | | | (62,744) | | | — | |
Employer contributions | 14 | | | 29,229 | | | 6 | |
| | | | | |
Benefits paid (including lump sums) | (339) | | | (1,529) | | | (6) | |
Settlements | — | | | (9,361) | | | — | |
Foreign currency exchange rate impact | — | | | 5,777 | | | — | |
Fair value of plan assets, end of year | 132,326 | | | 1,015,274 | | | — | |
(Under) over funded status, end of year | $ | (34,474) | | | $ | 224,611 | | | $ | (10,808) | |
_____________________
(a) All pension and postretirement plans were acquired with the acquisition of Meredith on December 1, 2021.
The net actuarial gain included in the change in benefit obligation for the international pension plans for the year ended December 31, 2021, is primarily a result of the increase in the discount rate used at December 31, 2021, as compared to December 1, 2021, as well as a slight decrease in the inflation assumptions over the same period, partially offset by experience losses due to certain plan participants electing a full settlement of their benefit obligation under an ongoing enhanced transfer value exercise.
Benefits paid directly from Dotdash Meredith assets are included both in employer contributions and benefits paid.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following amounts are recognized in the December 31, 2021 balance sheet:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Pension | | Postretirement |
| Domestic | | International | | Domestic |
| (in thousands) |
Other non-current assets | | | | | |
Prepaid benefit cost | $ | 24,318 | | | $ | 231,791 | | | $ | — | |
Accrued expenses and other current liabilities | | | | | |
Accrued benefit liability | (52,523) | | | — | | | (1,146) | |
Other long-term liabilities | | | | | |
Accrued benefit liability | (6,269) | | | (7,180) | | | (9,662) | |
Net amount recognized | $ | (34,474) | | | $ | 224,611 | | | $ | (10,808) | |
The accumulated benefit obligation for the domestic defined benefit pension plans was $159.2 million at December 31, 2021. The accumulated benefit obligation for the international defined benefit pension plans was $790.7 million at December 31, 2021.
The following table provides information about pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
| | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Domestic | | International |
| (in thousands) |
Projected benefit obligation | $ | 58,789 | | | $ | 7,179 | |
Accumulated benefit obligation | $ | 57,669 | | | $ | 7,179 | |
Fair value of plan assets | $ | — | | | $ | — | |
Costs
The components of net periodic benefit costs recognized in the statement of operations were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Pension | Postretirement |
| Domestic | | International | | Domestic |
| (in thousands) |
Components of net periodic benefit costs | | | | | |
Service cost | $ | 368 | | | $ | — | | | $ | 1 | |
Interest cost | 224 | | | 981 | | | 22 | |
Expected return on plan assets | (564) | | | (1,640) | | | — | |
| | | | | |
Actuarial (gain) loss amortization | (2,480) | | | 9,724 | | | (132) | |
| | | | | |
Contractual termination benefits | 11,785 | | | — | | | — | |
Net periodic benefit costs (credit) | $ | 9,333 | | | $ | 9,065 | | | $ | (109) | |
The contractual termination benefit charge for the domestic plans were related to change in control agreements for six executives. The change in control payments were triggered by IAC's acquisition of Meredith and the subsequent termination of the affected executives. The employment agreements for the covered executives provided for immediate vesting in any unvested benefits, as well as an additional three years of continued service, age and pay credit in each of the pension plans in which they were participants.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The components of net periodic benefit costs (credit), other than the service cost component, are included in "Other income (expense), net" in the statement of operations.
Assumptions
Benefit obligations were determined using the following weighted average assumptions:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Pension | Postretirement |
| Domestic | | International | | Domestic |
Weighted average assumptions | | | | | |
Discount rate | 2.04 | % | | 1.67 | % | | 2.61 | % |
Rate of compensation increase | 2.95 | % | | N/A | | 3.50 | % |
Cash balance interest rate credit | 2.13 | % | | N/A | | N/A |
Net periodic benefit costs (credit) were determined using the following weighted average assumptions:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Pension | | Postretirement |
| Domestic | | International | | Domestic |
Weighted average assumptions | | | | | |
Discount rate | 2.02 | % | | 1.40 | % | | 2.52 | % |
Expected return on plan assets | 6.00 | % | | 1.90 | % | | N/A |
Rate of compensation increase | 2.90 | % | | N/A | | 3.50 | % |
Cash balance interest credit rate | 2.04 | % | | N/A | | N/A |
The assumed healthcare trend rates used to measure the expected cost of benefits were as follows:
| | | | | |
| Postretirement |
Assumed healthcare cost trend rate | |
Rate of increase in healthcare cost levels | |
Initial level | 6.50 | % |
Ultimate level | 5.00 | % |
Years to ultimate level | 6 |
Pension expense is calculated using a number of actuarial assumptions, including an expected long-term rate of return on assets and a discount rate. In developing the expected long-term rate of return on plan assets, the Company considered long-term historical rates of return, plan asset allocations as well as the opinions and outlooks of investment professionals and consulting firms. Returns projected by such consultants and economists are based on broad equity and bond indices. The objective is to select an average rate of earnings expected on existing plan assets and expected contributions to the plan during the year. The Company reviews this long-term assumption on a periodic basis. Since the Company utilizes the mark-to-market approach to account for pension and postretirement benefits, the expected long-term rate of return on assets has no effect on the overall amount of net periodic benefit cost (credit) recorded for the year.
The value (market-related value) of plan assets is multiplied by the expected long-term rate of return on assets to compute the expected return on plan assets, a component of net periodic pension cost. The market-related value of plan assets is a calculated value that recognizes changes in fair value over three years.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Plan Assets
The targeted and weighted average asset allocations by asset category for investments held by the Company’s pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Domestic Allocation | | International Allocation |
| Target | | Actual | | Target | | Actual |
Equity securities | 62% | | 63% | | 1% | | 2% |
Fixed income securities | 38% | | 36% | | 63% | | 63% |
Other securities (b) | —% | | 1% | | 36% | | 35% |
Total | 100% | | 100% | | 100% | | 100% |
_____________________
(b) Other primarily includes pooled investment funds and an insurance buy-in contract.
The Company’s investment policy for domestic plans seeks to maximize investment returns while balancing the Company’s tolerance for risk. The plan fiduciaries of the U.S. funded (qualified) pension plan oversee the investment allocation process by selecting investment managers, setting long-term strategic targets, and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and plan fiduciaries may occasionally approve allocations above or below a target range, or elect to rebalance the portfolio within the targeted range. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across domestic and international stocks and between growth and value stocks and small and large capitalizations. The primary investment strategy currently employed is a dynamic target allocation method that periodically rebalances among various investment categories depending on the current funded position. This program is designed to actively move from return-seeking investments (such as equities) toward liability-hedging investments (such as fixed-income) as funding levels improve. The reverse effect occurs when funding levels decrease.
The trustees of the IPC Media Pension Scheme (IPC Plan) defined benefit pension plan in the U.K. have delegated the day-to-day investment decisions of the IPC Plan to a large international fiduciary manager and utilize an investment manager to monitor the investment performance and the reporting of the fiduciary manager. The investment objective of the IPC Plan is to invest the assets prudently with the intention that the benefits promised to the members are provided. Funding level based de-risking triggers have been established such that the investment strategy evolves as the funding level moves along an agreed glide path. As the funding level improves, the investment strategy will de-risk. Each trigger level specifies a minimum interest rate and hedge rate ratio and a maximum allocation to growth assets, which target a diversified portfolio using specialist managers and asset classes.
Equity securities did not include any IAC common stock at December 31, 2021.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Fair value measurements for the U.S. funded (qualified) pension plan assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Investments in registered investment companies | | | | | | | |
Equity | $ | 65,982 | | | $ | 17,866 | | | $ | — | | | $ | 83,848 | |
Fixed income | 7,442 | | | 39,148 | | | — | | | 46,590 | |
Pooled separate accounts | — | | | 1,888 | | | — | | | 1,888 | |
Total assets at fair value | $ | 73,424 | | | $ | 58,902 | | | $ | — | | | $ | 132,326 | |
Fair value measurements for the international pension plan assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Cash and cash equivalents | $ | 63,245 | | | $ | — | | | $ | — | | | $ | 63,245 | |
Pooled investments | | | | | | | |
Equity | 1,154 | | | 9,728 | | | — | | | 10,882 | |
Fixed income | 6,276 | | | 45,362 | | | — | | | 51,638 | |
Other | — | | | 576,414 | | | — | | | 576,414 | |
Insurance buy-in contract | — | | | — | | | 313,095 | | | 313,095 | |
Total assets at fair value | $ | 70,675 | | | $ | 631,504 | | | $ | 313,095 | | | $ | 1,015,274 | |
The international pension plans hold investments in liability matching funds whose objective is to provide leveraged returns equal to that of the liabilities. In order to do so, these funds invest in UK Treasury Gilt bonds, Gilt Total Return Swaps, Repurchase Transactions, and cash or money markets to provide liquidity to meet payment obligations or post as collateral in the derivative transactions they enter. These liability matching funds are included in Other pooled investments in the table above.
To reduce risk without adversely affecting returns, the trustees entered into an insurance buy-in contract with a private limited life insurance company to insure a portion of the IPC Plan, covering approximately 30 percent of IPC Plan participants, which is intended to provide payments designed to equal all future designated contractual benefit payments to covered participants. The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits. The assets and liabilities with respect to insured participants are assumed to match (i.e., the full benefits have been insured). The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time. As the valuation of this asset is judgmental, and there are no observable inputs associated with the valuation, the insurance buy-in contract is presented as a Level 3 investment. Refer to "Note 2—Summary of Significant Accounting Policies" for a discussion of the three levels in the hierarchy of fair values.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | |
| December 31, 2021 |
| (In thousands) |
Balance at beginning of year | $ | — | |
Acquisitions | 327,722 | |
Settlements | (1,040) | |
Change in fair value | (15,326) | |
Foreign currency translation | 1,739 | |
Balance at end of year | $ | 313,095 | |
There were no transfers in or out of Level 3 investments for the years ended December 31, 2021.
Cash Flows
Although the Company does not have a minimum funding requirement for the domestic pension plans in 2022, the Company is currently determining what voluntary pension plan contributions, if any, will be made in 2022 to the domestic plan. Actual contributions will be dependent upon investment returns, changes in pension obligations, and other economic and regulatory factors. The Company expects to contribute $1.2 million to its postretirement plan in 2022.
Monthly contributions of £0.9 million (totaling £22.0 million over the two years ending in December 2023) are required to be made into an escrow account for the benefit of the IPC Plan. The escrow account is intended to be used for the ultimate buy-out of the liabilities of the IPC Plan. Any amounts remaining in the escrow account after the buy-out will be returned to the Company.
The following benefit payments, which reflect expected future service as appropriate, are expected to be paid:
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Domestic | | International | | Domestic |
Years Ended December 31, | (in thousands) |
2022 | $ | 90,676 | | | $ | 18,775 | | | $ | 1,161 | |
2023 | 7,119 | | | 18,503 | | | 1,058 | |
2024 | 7,312 | | | 20,369 | | | 988 | |
2025 | 8,362 | | | 21,021 | | | 920 | |
2026 | 7,117 | | | 21,909 | | | 827 | |
Thereafter | 34,356 | | | 125,118 | | | 3,258 | |
Net amount recognized, end of year | $ | 154,942 | | | $ | 225,695 | | | $ | 8,212 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Defined Contribution Plans
IAC/InterActiveCorp Retirement Savings Plan
IAC employees in the United States can elect to participate in a retirement savings program, the IAC/InterActiveCorp Retirement Savings Plan (the "Plan"), that qualifies under Section 401(k) of the Internal Revenue Code. Under the Plan, participating employees may contribute up to 50% of their pre-tax earnings, but not more than statutory limits. Prior to July 2019, the Company contributed an amount equal to 50% of the first 6% of compensation that a participant contributes in each payroll period to the Plan. In June 2019, the Company approved a change to its matching contribution to 100% of the first 10% of an employee's eligible compensation, subject to IRS limits on the Company's matching contribution maximum, that a participant contributes to the Plan. This change was phased in beginning July 1, 2019 and was implemented by some but not all of IAC's subsidiaries participating in the Plan by January 1, 2020. Effective January 1, 2020, the Plan limits Company matching contributions to $10,000 per participant on an annual basis. Matching contributions to the Plan for the years ended December 31, 2021, 2020 and 2019 were $22.0 million, $16.9 million and $13.1 million, respectively. Matching contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the Plan. An investment option in the Plan is IAC common stock, but neither participant nor matching contributions are required to be invested in IAC common stock. The increase in matching contributions in 2021 is primarily due to an increase in headcount and employee contributions. The increase in matching contribution in 2020 is due primarily to the aforementioned change in the Company's matching contribution.
IAC also has or participates in various benefit plans, principally defined contribution plans, for its international employees. IAC's contributions to these plans for the years ended December 31, 2021, 2020 and 2019 were $0.9 million, $0.7 million and $0.7 million, respectively.
Meredith Savings and Investment Plan
In connection with the acquisition of Meredith, the Company assumed its U.S. defined contribution saving plan (the "Meredith Savings and Investment Plan"). Eligible employees may participate in the Meredith Savings and Investment Plan, which allows eligible employees to contribute a percentage of their salary, commissions, and bonuses in accordance with plan limitations and provisions of Section 401(k) of the Internal Revenue Code and the Company makes matching contributions to the plan subject to the limits of the plan. The Company matches 100 percent of the first 4 percent and 50 percent of the next 1 percent of employee contributions for employees eligible for the Company’s pension benefits and 100 percent of the first 5 percent for employees ineligible for the Company’s pension benefits. Matching contributions to this defined contribution savings plan for the year ended December 31, 2021 were $0.8 million.
Effective January 1, 2023, the Company, as permitted by the relevant Plan documents, intends to merge the accounts of eligible participants in the Meredith Savings and Investment Plan into the Plan.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 18—FINANCIAL STATEMENT DETAILS
Cash and Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheet to the total amounts shown in the statement of cash flows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| (In thousands) |
Cash and cash equivalents | $ | 2,118,730 | | | $ | 3,366,176 | | | $ | 837,916 | | | $ | 883,991 | |
Restricted cash included in other current assets | 1,941 | | | 448 | | | 503 | | | 1,417 | |
Restricted cash included in other non-current assets | 1,193 | | | 449 | | | 409 | | | 420 | |
Cash, cash equivalents, and restricted cash included in current assets of discontinued operations | — | | | 110,037 | | | 1,904 | | | 1,008 | |
Total cash and cash equivalents and restricted cash as shown on the statement of cash flows | $ | 2,121,864 | | | $ | 3,477,110 | | | $ | 840,732 | | | $ | 886,836 | |
Restricted cash included in other current assets at December 31, 2021 primarily consists of cash held in escrow related to the IPC Plan the Company assumed in connection with the acquisition of Meredith.
Restricted cash at December 31, 2020 primarily consists of funds collected from service providers for payments in dispute, which are not settled as of the period end, and cash reserved to fund insurance claims at Angi Inc.
Restricted cash at December 31, 2019 primarily consists of a deposit related to corporate credit cards at Angi Inc.
Restricted cash at December 31, 2018 primarily consists of a cash collateralized letter of credit and a deposit related to corporate credit cards.
Restricted cash included in other non-current assets at December 31, 2021 consisted of deposits related to leases and an endorsement guarantee related to insurance at Angi Roofing. Restricted cash included in "Other non-current assets" in the balance sheet for all other periods presented consists of deposits related to leases.
Credit Losses and Revenue Reserve
The following table presents the changes in the allowance for credit losses for the years ended December 31, 2021 and 2020, respectively:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Balance at January 1 | $ | 27,178 | | | $ | 19,984 | |
Current period provision for credit losses | 89,893 | | | 78,931 | |
Write-offs charged against the allowance | (82,875) | | | (74,170) | |
| | | |
Recoveries collected | 2,441 | | | 2,433 | |
Balance at December 31 | $ | 36,637 | | | $ | 27,178 | |
The revenue reserve was $3.1 million and $2.1 million at December 31, 2021 and 2020, respectively. The total allowance for credit losses and revenue reserve was $39.7 million and $29.2 million at December 31, 2021 and 2020, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Other current assets
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
| | | |
Prepaid expenses | $ | 73,483 | | | $ | 46,096 | |
| | | |
Inventories, net (a) | 30,710 | | | 317 | |
Other | 137,995 | | | 93,609 | |
Other current assets | $ | 242,188 | | | $ | 140,022 | |
_____________________
(a) Includes raw materials of $17.0 million, work in process of $11.1 million, and finished goods of $2.4 million at December 31, 2021. Represents $0.3 million of finished goods at December 31, 2020.
Buildings, capitalized software, leasehold improvements, equipment and land
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Buildings and leasehold improvements | $ | 418,249 | | | $ | 195,502 | |
Capitalized software and computer equipment | 386,421 | | | 149,693 | |
Furniture and other equipment | 181,605 | | | 83,501 | |
Land | 33,919 | | | — | |
Projects in progress | 47,218 | | | 53,635 | |
Buildings, capitalized software, leasehold improvements, equipment and land | 1,067,412 | | | 482,331 | |
Accumulated depreciation and amortization | (496,887) | | | (207,401) | |
Buildings, capitalized software, leasehold improvements, equipment and land, net | $ | 570,525 | | | $ | 274,930 | |
Accrued expenses and other current liabilities
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Accrued employee compensation and benefits | $ | 277,594 | | | $ | 107,280 | |
Customer deposit liability | 146,282 | | | — | |
Accrued advertising expense | 67,986 | | | 56,286 | |
Accrued traffic acquisition costs | 77,913 | | | 38,710 | |
Other | 410,799 | | | 138,130 | |
Accrued expenses and other current liabilities | $ | 980,574 | | | $ | 340,406 | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Other income (expense), net
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Unrealized increase (decrease) in the estimated fair value of a warrant | $ | 104,018 | | | $ | (1,213) | | | $ | (9,123) | |
Unrealized gain related to an investment following its initial public offering | 18,788 | | | — | | | — | |
Upward adjustments to the carrying value of equity securities without readily determinable fair values | 8,892 | | | — | | | 18,505 | |
Realized gain on the sale of a marketable equity security | 7,174 | | | — | | | 20,486 | |
Realized gains related to the sale of investments | 5,773 | | | 10,373 | | | 330 | |
Realized gains related to the sale of business | 4,209 | | | 1,061 | | | — | |
Interest income | 1,351 | | | 7,177 | | | 15,159 | |
Net periodic pension benefit costs, other than the service cost component | (17,858) | | | — | | | — | |
Foreign exchange (losses) gains, net (a) | (13,636) | | | 674 | | | 117 | |
Loss on the extinguishment of debt (b) | (1,110) | | | — | | | — | |
Impairments related to COVID-19 (c) | — | | | (59,001) | | | — | |
Other | (5,747) | | | (1,632) | | | (4,987) | |
Other income (expense), net | $ | 111,854 | | | $ | (42,561) | | | $ | 40,487 | |
_____________________
(a) Includes $10.0 million in foreign exchange losses primarily related to the substantial liquidation of certain foreign subsidiaries in the three months ended March 31, 2021.
(b) Represents the write-off of deferred debt issuance costs related to the ANGI Group Term Loan, which was repaid in its entirety during the second quarter of 2021.
(c) Includes $51.5 million in impairments related to investments in equity securities without readily determinable fair values and $7.5 million in impairments of a note receivable and a warrant related to certain investees in the year ended December 31, 2020.
Supplemental Disclosure of Cash Flow Information:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Cash paid (received) during the year for: | | | | | |
Interest | $ | 21,702 | | | $ | 6,524 | | | $ | 10,042 | |
Income tax payments | $ | 9,880 | | | $ | 5,974 | | | $ | 4,797 | |
Income tax refunds | $ | (1,762) | | | $ | (2,010) | | | $ | (3,048) | |
NOTE 19—SUBSEQUENT EVENT
On February 16, 2022, the Company purchased an additional 4.5 million shares of MGM for $202.5 million. Following this purchase, the Company owns approximately 63.5 million shares, representing a 14.4% ownership interest in MGM as of February 16, 2022.