ServiceMagic 2010 Annual Report Download - page 68

Table of Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value Measurements
The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing
the asset or liability. The three levels of the fair value hierarchy are:
•
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active
markets.
•
Level 2: Other inputs that 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 value of the Company's level 2 financial assets is 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 a weighted 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
asset or liability. See Note 8 for a discussion of assets measured at fair value using level 3 inputs.
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity and cost method
investments, are measured at fair value only when an impairment charge is recognized. Such impairment charges incorporate fair value
measurements based on Level 3 inputs. See Note 5 for a discussion of goodwill and intangible asset impairment charges and Note 7 for a
discussion of impairment charges related to equity and cost method investments.
Traffic Acquisition Costs
Traffic acquisition costs consist of payments made to partners who distribute our toolbars, 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 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 proprietary toolbars, and offline
marketing, including television and radio advertising. Advertising expense was $371.2 million, $347.8 million and $335.8 million for the years
ended December 31, 2010, 2009 and 2008, 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 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.
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