ServiceMagic 2009 Annual Report Download - page 73

Table of Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Traffic Acquisition Costs
Traffic acquisition costs consist of revenue share payments to partners that have distributed toolbars and/or integrated paid listings into their
websites and similar arrangements with third parties who direct traffic to our websites. The Company enters into agreements of varying duration
with payments primarily based on a cost per click or a percentage of the Company's revenue multiplied by an agreed-upon price or rate. The
Company expenses these payments as a component of cost of revenue in the accompanying consolidated statement of operations.
Advertising Costs (excluding Amortization of Non-Cash Marketing)
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 toolbars, and offline marketing,
including television, radio and print advertising. Advertising expense was $349.3 million, $335.4 million and $305.5 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Effective April 1, 2007, the Company began to capitalize and amortize 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 search toolbars associated with
the Company's search businesses. 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. For fees paid prior to April 1, 2007, such benefit or period could not be reasonably
estimated and the fees were charged to expense as incurred.
Amortization of Non-Cash Marketing
Amortization of non-cash marketing consists of non-cash advertising credits secured from Universal Television as part of the transaction
pursuant to which Vivendi Universal Entertainment LLLP ("VUE") was created, and the subsequent transaction by which IAC sold its
partnership interests in VUE (collectively referred to as the "NBC Universal Advertising"). The NBC Universal Advertising was available for
television advertising on various NBC Universal network and cable channels without any cash cost. At December 31, 2009, there were no NBC
Universal credits available as all credits had been used. At December 31, 2008, $15.9 million of NBC Universal credits were available for use.
Income Taxes
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 amounts 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 tax
contingencies as a component of income tax expense.
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