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Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
FAIR VALUE MEASUREMENTS [Abstract]  
Fair Value Measurements [Text Block]
FAIR VALUE MEASUREMENTS
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2-Include other inputs that are directly or indirectly observable in the marketplace.
Level 3-Unobservable inputs that are supported by little or no market activities. Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models, discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions.
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company's instruments measured at fair value and their classification in the valuation hierarchy are summarized below:
Cash equivalents-Cash equivalents primarily consisted of AAA-rated money market funds with over night liquidity and no stated maturities. The Company classified cash equivalents as Level 1, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets.
Contingent consideration- As of the year ended December 31, 2011, the Company had obligations to transfer $11.2 million in contingent payment considerations and $2.0 million in contingent stock issuances to the former owners of certain acquirees as part of the exchange for control of these acquirees, if specified future operational objectives and financial results are met over the next three years. The Company determined the acquisition-date fair value of these contingent liabilities, based on the likelihood of contingent earn-out payments and stock issuances, as part of the consideration transferred. The earn-out payments and value of stock issuances were subsequently remeasured to the fair value of the consideration. For contingent consideration to be settled in cash, the Company used two approaches to value the liabilities. The first is an income approach that is primarily determined based on the present value of future cash flows using internal models. The second is an option pricing methodology within a Black-Scholes framework. For contingent consideration to be settled in a variable number of shares of common stock, the Company used the most recent Groupon stock price as reported on the NASDAQ to determine the fair value of the shares as of year end. The Company classified the financial liabilities to be settled in a variable number of shares of common stock as Level 2 as the fair market value of the shares is an observable input that is directly observable in the marketplace. The Company classified the financial liabilities to be settled in cash as Level 3, due to the lack of relevant observable inputs and market activity. Changes in assumptions described above could have an impact on the payout of contingent consideration with a maximum payout being $23.6 million.
The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis (in thousands):



 
 
 
Fair Value Measurement at
Reporting Date Using
Description
As of
December 31,
2010
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
23,028

 
$
23,028

 
$
—

 
$
—


 
 
 
Fair Value Measurement at
Reporting Date Using
Description
As of
December 31,
2011
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
750,004

 
$
750,004

 
$
—

 
$
—

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration
$
13,218

 
$
—

 
$
1,988

 
$
11,230


The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the year ended December 31, 2011 (in thousands):
 
Fair Value
Balance as of December 31, 2010
$
—

Issuance of contingent consideration in connection with acquisitions
17,755

Change in fair value
(4,537
)
Reclass to Level 2
$
(1,988
)
Balance as of December 31, 2011
$
11,230

 
 

For the year ended December 31, 2011, the Company recorded an adjustment to the original contingent consideration obligations recorded upon the acquisitions. The adjustments were the result of using revised forecasts based on new information that did not exist at the time of the acquisition and updated fair value measurements that adjusted the Company's potential earnout payments in future years related to the purchase of these businesses. For the year ended December 31, 2011 the Company recognized a net benefit of $4.5 million in acquisition related expenses in the statement of operations due to the change in fair value measurements using a Level 3 valuation technique. As of December 31, 2011, $4.2 million of contingent consideration is fixed as the certain operational objectives and financial result criteria were met in 2011, and were paid in March 2012.
There was a change in the Company's method to value the common shares issued as contingent consideration to be settled in a variable number of shares in the fourth quarter of 2011. As Groupon is now a public company, the actual stock price was used to value the liability versus private market data resulting in a reclassification to Level 2. In addition, the Company changed the method for valuing one of its contingent liabilities to be settled in cash in the fourth quarter of 2011. The Company used an option model to value the liabilities versus an income approach that was used in the first three quarters of 2011. There were no other changes to the Company's valuation techniques used to measure asset and liability fair values on a recurring basis during 2010 and 2011.
The Company's other financial instruments consist primarily of accounts receivable, accounts payable, accrued merchant payable, accrued expenses and loans from related parties. The carrying value of these assets and liabilities approximate their respective fair values as of December 31, 2010 and 2011, due to their short term nature. At December 31, 2010 and 2011, no material fair value adjustments were required for non-financial assets and liabilities.