ServiceMagic 2014 Annual Report Download - page 73

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Traffic Acquisition Costs
Traffic acquisition costs consist of payments made to partners who distribute our B2B customized browser-based applications, integrate our
paid listings into their websites or direct traffic to our websites. These payments include amounts based on revenue share and other arrangements.
The Company expenses these payments in the period incurred as a component of cost of revenue in the accompanying consolidated statement of
operations.
Advertising Costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and
represent online marketing, including fees paid to search engines and third parties that distribute our B2C downloadable applications, and offline
marketing, which is primarily television advertising. Advertising expense is $971.8 million , $824.1 million and $774.1 million for the years ended
December 31, 2014 , 2013 and 2012 , respectively.
The Company capitalizes and amortizes the costs associated with certain distribution arrangements that require it to pay a fee per access point
delivered. These access points are generally in the form of downloadable applications associated with our B2C operations. These fees are amortized
over the estimated useful lives of the access points to the extent the Company can reasonably estimate a probable future economic benefit and the
period over which such benefit will be realized (generally 18 months). Otherwise, the fees are charged to expense as incurred.
Legal Costs
Legal costs are expensed as incurred.
Income Taxes
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is
more than 50% likely of being realized upon ultimate settlement.
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the
deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, on potential income tax
contingencies as a component of income tax expense.
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• 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
Note 7 for a discussion of fair value measurements made using Level 3 inputs.