ServiceMagic 2014 Annual Report Download - page 91

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 arrangements
As of December 31, 2014 , there are five contingent consideration arrangements related to business acquisitions. Four of the contingent
consideration arrangements have limits as to the maximum amount that can be paid; the maximum contingent payments related to these
arrangements is $166.9 million and the fair value of these four arrangements at December 31, 2014 is $29.5 million . The fair value of the one
contingent consideration arrangement without a limit on the maximum amount is $0.7 million at December 31, 2014 . The contingent consideration
arrangements are generally based upon earnings performance and/or operating metrics. The Company primarily uses probability-weighted analyses
to determine the amount of the gross liability, and, to the extent the arrangement is long-term in nature, applies a discount rate, which captures the
risks associated with the obligation. The number of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared
for longer duration and more complex arrangements. The most significant contingent consideration arrangement relates to the acquisition of
Twoo.com.
The Twoo.com contingent consideration arrangement is payable in three annual installments, which began in 2014. Payments are based upon
EBITDA and number of monthly active users. The 2014 installment of $7.4 million was paid in the second quarter of 2014. The remaining
aggregate amount of the 2015 and 2016 installment payments cannot exceed €77.9 million ( $94.9 million at December 31, 2014 ). The estimate of
the fair value for the Twoo.com remaining payments was determined using a probability weighted analysis that forecasted EBITDA and monthly
active users based primarily on management's internal projections and strategic plans. The fair value of this arrangement is determined using a
discount rate of 15% .
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,
and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent
consideration arrangement liability at December 31, 2014 includes a current portion of $10.7 million and non-current portion of $19.6 million ,
which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying
consolidated 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:
The fair value of long-term debt 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.
70
December 31, 2014
December 31, 2013
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(In thousands)
Long-term debt
$
(1,080,000
)
$
(1,099,813
)
$
(1,080,000
)
$
(1,058,396
)