Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements

Fair Value Measurements

8. Fair Value Measurements

        ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

        ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• •

  Level 1—Quoted prices in active markets for identical assets or liabilities.

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  Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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  Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

   

        Financial Assets and Liabilities Measured on a Recurring Basis

        We have classified our assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

        The tables below set forth by level, assets and liabilities that were accounted for at fair value as of December 31, 2012 and 2011. The tables do not include cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):

		Fair Value Measurements at December 31, 2012
	Balance Sheet Location	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Assets:
Money market funds	(a)	$	4,004	$	—	$	—	$	4,004
Currency forward derivatives/options	(b)		—		445		—		445
Springbox revenue sharing	(b)(c)		—		—		768		768
Marketable equity securities	(c)		337		—		—		337
Total		$	4,341	$	445	$	768	$	5,554
Liabilities:
Revenue earnouts	(d)(e)	$	—	$	—	$	2,857	$	2,857

		Fair Value Measurements at December 31, 2011
		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Assets:
Money market funds	(a)	$	35,929	$	—	$	—	$	35,929
Marketable equity securities	(c)		1,489		—		—		1,489
Total		$	37,418	$	—	$	—	$	37,418
Liabilities:
Currency forward derivatives	(d)	$	—	$	532	$	—	$	532
Revenue earnouts	(d)(e)		—		—		1,673		1,673
Total		$	—	$	532	$	1,673	$	2,205

(a)

Included in cash and cash equivalents.

(b)

Included in other current assets.

(c)

Included in other non-current assets.

(d)

Included in accrued liabilities.

(e)

Included in other non-current liabilities.

        The fair value of our money market funds and marketable equity securities were determined based upon quoted market prices. Our marketable equity securities relate to a single issuer that had an original cost basis of $1.2 million. During 2012 we determined the decline in value was other than temporary and, as a result, we recorded an impairment charge of $0.9 million. The currency forwards and currency forwards/options are derivative instruments whose value is based upon quoted market prices from various market participants.

        As permitted in the EyeWonder purchase agreement, we held back $5 million of the purchase price to fund certain transaction costs for a one-year period. To the extent the $5 million fund was not spent on allowable transaction costs within one year of the purchase date (September 1, 2011), we were required to remit the balance to the EyeWonder seller. As of September 1, 2012, we spent the entire fund on transaction costs we believe are allowable and therefore have not recognized any amount as a payable to the EyeWonder seller.

        In connection with the sale of Springbox (see Note 10), we are entitled to receive a percentage of the revenues collected by the business for three years after the closing date (June 1, 2012). We have estimated the future revenues of Springbox based on the historical revenues and certain other factors, discounted to their present value. The following table provides a reconciliation of changes in the fair values of our Level 3 assets (in thousands):

	Springbox Revenue Sharing
Balance at December 31, 2011	$	—
Additions		768
Change in fair value recognized in earnings		—
Balance at December 31, 2012	$	768

        In connection with an acquisition of a business, we sometimes include a contingent consideration component of the purchase price based on future revenues. We estimate future revenues based on historical revenues and certain other factors. Each reporting period, we update our estimate of the future revenues of each earnout party and the corresponding earnout levels achieved, discounted to their present values. The change in fair value is recorded in cost of revenues in the accompanying consolidated statements of operations. The following table provides a reconciliation of changes in the fair value of our Level 3 liabilities (in thousands):

	Revenue Earnouts
	2012			2011			2010
Balance at beginning of period	$	1,673		$	1,602		$	—
Additions		1,855			939			2,602
Payments		—			—			(1,000	)
Change in fair value recognized in earnings		(671	)		(868	)		—
Balance at end of period	$	2,857		$	1,673		$	1,602

        The fair value of our debt (see Note 7) at December 31, 2012 was approximately $452.2 million based on the average trading price (a Level 1 fair value measurement).

        Short-Term Investments

        We had the following investments at December 31, 2012 and 2011 (in thousands):

	December 31,
	2012		2011
Certificates of deposit	$	314	$	8,382
Short-term bonds		—		2,008
Total	$	314	$	10,390

        Our certificates of deposit were held in banks located in Israel. The certificates of deposit and short-term bonds were considered held-to-maturity securities as we had the ability and intent to hold them to maturity. They are carried at amortized cost which approximates fair value.

        Financial Assets and Liabilities Measured on a Nonrecurring Basis

        Except for the impairments of our online reporting unit's goodwill during 2012 (a Level 3 fair value measurement), we did not record any material other-than-temporary impairments on financial assets required to be measured at fair value on a nonrecurring basis. See Note 5.