ServiceMagic 2012 Annual Report Download - page 61

IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, which consist of property and equipment and intangible assets with definite lives, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-
lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the
asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of
the long-lived asset exceeds its fair value. Amortization of definite-lived intangible assets is computed either on a straight-line basis or based on
the period in which the economic benefits of the asset will be realized.
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:
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. 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 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 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, principally television and radio advertising. Advertising expense is $779.7 million , $497.2 million and $371.2 million for the
years ended December 31, 2012, 2011 and 2010, 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.
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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 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 9 for a discussion of fair value measurements made using Level 3 inputs.