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, which 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 values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.


•	Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. 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, 2016
	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	$	582,508	$	—	$	—		$	582,508
Time deposits	—		75,000		—			75,000
Treasury discount notes	12,497		—		—			12,497
Commercial paper	—		86,953		—			86,953
Marketable securities:
Corporate debt securities	—		15,402		—			15,402
Treasury discount notes	162,460		—		—			162,460
Total	$	757,465	$	177,355	$	—		$	934,820

Liabilities:
Contingent consideration arrangements	$	—	$	—	$	(43,352	)	$	(43,352	)



	December 31, 2015
	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	$	601,848	$	—	$	—		$	601,848
Time deposits	—		125,038		—			125,038
Commercial paper	—		302,418		—			302,418
Marketable securities:
Corporate debt securities	—		27,578		—			27,578
Equity security	11,622		—		—			11,622
Long-term investments:
Auction rate security	—		—		4,050			4,050
Marketable equity security	7,542		—		—			7,542
Total	$	621,012	$	455,034	$	4,050		$	1,080,096

Liabilities:
Contingent consideration arrangements	$	—	$	—	$	(33,873	)	$	(33,873	)

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,
	2016			2015
	Contingent Consideration Arrangements			Auction Rate Security			Contingent Consideration Arrangements
	(In thousands)
Balance at July 1	$	(45,526	)	$	6,630		$	(31,858	)
Total net gains (losses):
Included in earnings:
Fair value adjustments	2,477			—			960
Included in other comprehensive loss	(333		)	(1,620		)	(579		)
Settlements	30			—			7
Balance at September 30	$	(43,352	)	$	5,010		$	(31,470	)



	Nine Months Ended September 30,
	2016						2015
	Auction Rate Security			Contingent Consideration Arrangements			Auction Rate Security			Contingent Consideration Arrangements
	(In thousands)
Balance at January 1	$	4,050		$	(33,873	)	$	6,070		$	(30,140	)
Total net gains (losses):
Included in earnings:
Fair value adjustments	—			(7,993		)	—			17,906
Foreign currency exchange gains	—			—			—			626
Included in other comprehensive income (loss)	5,950			(5,614		)	(1,060		)	1,538
Fair value at date of acquisition	—			1,948			—			(27,112		)
Settlements	—			2,180			—			5,712
Proceeds from sale	(10,000		)	—			—			—
Balance at September 30	$	—		$	(43,352	)	$	5,010		$	(31,470	)

Contingent Consideration Arrangements

As of September 30, 2016, there are seven contingent consideration arrangements related to business acquisitions. The maximum contingent payments related to these seven arrangements are $142.6 million and the fair value of these arrangements at September 30, 2016 is $43.4 million.

The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics such as monthly active users. The Company 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 risks associated with the obligation to determine the net amount reflected in the consolidated financial statements. The number of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared for longer duration and more complex arrangements. The fair values of the contingent consideration arrangements at September 30, 2016 and December 31, 2015 reflect discount rates ranging from 12% to 25%.

The fair values of the contingent consideration arrangements are sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangements each reporting period, including the accretion of the discount, if applicable, and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at September 30, 2016 and December 31, 2015 includes a current portion of $43.2 million and $2.6 million, respectively, and a non-current portion of $0.2 million and $31.2 million, respectively, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.

Marketable equity security

The cost basis of the Company's long-term marketable equity security at December 31, 2015 was $5.0 million, with a gross unrealized gain of $2.6 million. The gross unrealized gain at December 31, 2015 was included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. During the second quarter of 2016 this marketable equity security was classified as short-term due to the Company's decision to sell this security. During the third quarter of 2016, the security has been sold.

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. See Note 4 for additional information on the Publishing goodwill and indefinite-lived intangible asset impairment charges.

Cost method investments

At September 30, 2016 and December 31, 2015, the carrying values of the Company's investments accounted for under the cost method totaled $116.3 million and $114.5 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. The Company evaluates each cost method investment for impairment on a quarterly basis and 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, 2016						December 31, 2015
	Carrying Value			Fair Value			Carrying Value			Fair Value
	(In thousands)
Current portion of long-term debt	$	—		$	—		$	(40,000	)	$	(39,850	)
Long-term debt, net of current portion	(1,641,285		)	(1,741,800		)	(1,726,954		)	(1,761,601		)

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