EFTA01378086.pdf

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 6 for a discussion of fair value measurements made using Levet 3 inputs. F-32 Table of Content% The Company's non-financial assets, such as goodwill. Intangible assets and property and equipment. as well as cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs. 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, oMine marketing, which is primanly television advertising and partner-related payments to those who direct traffic to our websites Advertising expense is $287.0 million, $297.5 million and $309.4 million for the years ended December 31, 2012, 2013 and 2014. respectively. Legal costs Legal costs are expensed as incurred. Income taxes Match Group, Inc. is a member of IAC's consolidated federal and state income tax returns. In all periods presented, current and deferred income tax expense has been computed for Match Group. Inc. on an as if stand-alone, separate retum basis. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. 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 on deferred tax assets 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. 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 combined 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' equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the combined statement of operations as a component of other income (expense), net. 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 8 for a discussion of stock-based compensation plans. F-33 Tette..QLC.ont.ents. Redeemable noncontrolling interests Noncontrolling interests in the combined subsidiaries of the Company should ordinarily be reported on the combined balance sheet within shareholder 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 shareholder equity. Accordingly, if redemption of the noncontrolling interests is outside the control of the Company, the interests are included outside of shareholder equity in the accompanying combined balance sheet. In connection with the acquisition of certain subsidiaries. current and former senior management of these businesses has retained an ovmership 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 these 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. No put and call arrangements were exercised during 2012 and 2014. During 2013, one of these arrangements was exercised. 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 invested capital. During 2012, there were no fair value adjustments recorded. During the years ended December 31, 2013 and 2014. the Company recorded adjustments of $19.3 million and $21.1 million, respectively, to increase these interests to fair value. Fair value determinations require high levels of judgment and are based on venous valuation techniques, hnp:. waw.aec.aver.&nl ivcskdg.rAatz1575189,00010474691500643112226458"-la.limil I I .9'2013927:17 Ahfl CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0075246 CONFIDENTIAL SONY GM_00221430 EFTA01378086