FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

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 prices for identical assets and liabilities in active markets.

•

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted 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 value of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.


•	Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See below for a discussion of fair value measurements made using Level 3 inputs.

The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:



	September 30, 2013
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Fair Value Measurements
	(In thousands)
Assets:
Cash equivalents:
Money market funds	$	347,345	$	—	$	—		$	347,345
Commercial paper	—		81,890		—			81,890
Time deposits	—		92,446		—			92,446
Marketable securities:
Corporate debt security	—		1,015		—			1,015
Equity securities	25,325		—		—			25,325
Long-term investments:
Auction rate security	—		—		9,300			9,300
Marketable equity securities	12,360		—		—			12,360
Total	$	385,030	$	175,351	$	9,300		$	569,681

Liabilities:
Contingent consideration arrangement	$	—	$	—	$	(48,931	)	$	(48,931	)



	December 31, 2012
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
	(In thousands)
Assets:
Cash equivalents:
Money market funds	$	545,290	$	—	$	—	$	545,290
Time deposits	—		11,994		—		11,994
Marketable securities:
Corporate debt securities	—		13,627		—		13,627
Equity security	6,977		—		—		6,977
Long-term investments:
Auction rate security	—		—		8,100		8,100
Marketable equity securities	31,244		—		—		31,244
Total	$	583,511	$	25,621	$	8,100	$	617,232

The cost basis of the Company's long-term marketable equity securities at September 30, 2013 is $8.8 million, with gross unrealized gains of $3.6 million included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. The cost basis of the Company's long-term marketable equity securities at December 31, 2012 is $42.1 million, with a gross unrealized loss of $10.8 million included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.

The following tables present the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



	Three Months Ended September 30,
	2013					2012
	Auction Rate Security		Contingent Consideration Arrangement			Auction Rate Security
	(In thousands)
Balance at July 1	$	8,760	$	(46,912	)	$	6,730
Total net gains (losses) (unrealized):
Included in earnings	—		(632		)	—
Included in other comprehensive income (loss)	540		(1,387		)	600
Balance at September 30	$	9,300	$	(48,931	)	$	7,330



	Nine Months Ended September 30,
	2013					2012
	Auction Rate Security		Contingent Consideration Arrangement			Auction Rate Security		Contingent Consideration Arrangement
	(In thousands)
Balance at January 1	$	8,100	$	—		$	5,870	$	(10,000	)
Total net gains (losses) (unrealized):
Included in earnings	—		(6,339		)	—		—
Included in other comprehensive income (loss)	1,200		(1,755		)	1,460		—
Fair value at date of acquisition	—		(40,837		)	—		—
Settlements	—		—			—		10,000
Balance at September 30	$	9,300	$	(48,931	)	$	7,330	$	—

There are no gains or losses included in earnings for the three and nine months ended September 30, 2012 relating to the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs.

Auction rate security

The Company's auction rate security is valued by discounting the estimated future cash flow streams of the security over the life of the security. Credit spreads and other risk factors are also considered in establishing fair value. The cost basis of the auction rate security is $10.0 million, with gross unrealized losses of $0.7 million and $1.9 million at September 30, 2013 and December 31, 2012, respectively. The unrealized losses are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. At September 30, 2013, the auction rate security is rated A-/WR and matures in 2035. The Company does not consider the auction rate security to be other-than-temporarily impaired at September 30, 2013, due to its high credit rating and because the Company does not intend to sell this security, and it is not more likely than not that the Company will be required to sell this security, before the recovery of its amortized cost basis, which may be maturity.

Contingent Consideration Arrangement

The contingent consideration arrangement entered into in 2013 arose from the acquisition of Twoo (see Note 3 for additional information). The fair value of the contingent consideration arrangement was determined using a probability-weighted analysis, and reflects a discount rate of 15%, which captures the risks associated with the obligation. The probability-weighted analysis consists of the Company's multi-scenario forecasts of Twoo's earnings and the number of users of Twoo.com in accordance with the contingent consideration arrangement through December 31, 2015, and the Company's estimate of the probability of each scenario occurring. These multi-scenario forecasts and related probability assessments were based primarily on management's internal projections and strategic plans, with limited additional consideration given to growth trends of similarly situated businesses. The fair value of the contingent consideration arrangement is sensitive to changes in the discount rate and changes in the forecasts of earnings and website users. The Company remeasures the fair value of the contingent consideration arrangement each reporting period, and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at September 30, 2013 includes a current portion of $3.9 million and non-current portion of $45.0 million, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.

The contingent consideration arrangement in 2012 related to OkCupid, acquired in January 2011.

Assets measured at fair value on a nonrecurring basis

The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity and 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.

At September 30, 2013 and December 31, 2012, the carrying values of the Company's investments accounted for under the cost method totaled $119.2 million and $113.8 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. The Company evaluates each cost method investment for possible impairment on a quarterly basis and determines the fair value if indicators of impairment are deemed to be present; the Company recognizes an impairment loss if a decline in value is determined to be other-than-temporary. If the Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost method investment, then the fair value of such cost method investment is not estimated, as it is impracticable to do so.

Financial instruments measured at fair value only for disclosure purposes

The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:



	September 30, 2013						December 31, 2012
	Carrying Value			Fair Value			Carrying Value			Fair Value
	(In thousands)
Current maturities of long-term debt	$	—		$	—		$	(15,844	)	$	(15,875	)
Long-term debt, net of current maturities	(580,000		)	(538,891		)	(580,000		)	(581,994		)

The fair value of long-term debt, including current maturities, is estimated using market prices or indices for similar liabilities and taking into consideration other factors such as credit quality and maturity, which are Level 3 inputs.