ServiceMagic 2011 Annual Report Download - page 71

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
circumstances, about the assumptions market participants would use in pricing the asset or liability. See Note 9 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 fair value measurements are based predominantly
on Level 3 inputs. See Note 6 for a discussion of goodwill and intangible asset impairment charges and Note 8 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 Mindspark's 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 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 Mindspark's downloadable applications,
and offline marketing, principally television and radio advertising. Advertising expense was $497.2 million, $371.2 million and $347.8 million
for the years ended December 31, 2011, 2010 and 2009, 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 Mindspark's 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.
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. All NBC Universal Advertising credits were
used prior to December 31, 2009.
Legal Costs
Legal costs are expensed as incurred.
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 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
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