2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and include the accounts of our wholly-owned, and majority-owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the recoverability and useful lives of long-lived assets, the adequacy of our allowance for doubtful accounts and credit memo reserves, office closure exit costs, contingent consideration and income taxes. We base our estimates on historical experience, future expectations and on other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

In the second half of 2010, we shortened the estimated remaining useful life of certain internally developed software assets from 13 months to six months. As a result, we recorded additional depreciation expense of $1.3 million during 2010, which reduced income from continuing operations, net income and diluted earnings per share by $0.7 million, $0.7 million and $0.03, respectively.

In connection with our purchase of MediaMind, in October 2011 we made the decision to transition our Unicast customers over to the MediaMind platform and cease using the Unicast platform in mid-2012. As a result, effective October 1, 2011, we shortened the estimated remaining useful life of the Unicast capitalized software from 25 months to 9 months. During 2012 and 2011, we recorded additional depreciation expense of $0.9 million and $0.5 million, respectively, which increased our loss / reduced income from continuing operations by $0.5 million and $0.3 million, net loss / income by $0.5 million and $0.3 million, and diluted loss / earnings per share by $0.02 and $0.01, respectively.

In the fourth quarter of 2011, we reduced our estimate of Match Point's expected 2011 and 2012 revenues which reduced our estimated earnout obligation by $0.9 million. The impact increased 2011 income from continuing operations, net income and diluted earnings per share by $0.4 million, $0.4 million and $0.02, respectively. See Notes 3 and 8.

In 2012, we reduced our estimated bonus for 2011 by approximately $1.1 million. The reduction was credited to general and administrative expense. The revised estimate reduced our 2012 loss from continuing operations, net loss and diluted loss per share by $0.6 million, $0.6 million and $0.02, respectively.

In 2012, we recorded goodwill impairment charges totaling $219.6 million related to our online reporting unit. See Note 5.

Cash and Cash Equivalents

Cash and cash equivalents consist of liquid investments with original maturities of three months or less. We maintain substantially all of our cash and cash equivalents with a few major financial institutions in the United States and Israel. As of December 31, 2012 and 2011, cash equivalents consisted primarily of U.S. and Israeli money market funds and overnight investments in U.S. and Israeli money market funds.

Restricted cash is included in other current and non-current assets and relates principally to (i) funding of Israeli statutory employee compensation, (ii) required cash balances for foreign currency forward contracts and options and (iii) security deposits on leased property.

Short-Term Investments

Short-term investments at December 31, 2012 and 2011 consisted of liquid investments (e.g., certificates of deposit and short-term bonds) with a remaining maturity of twelve months or less, and, with respect to certificates of deposit, an original maturity of more than three months.

Accounts Receivable and Allowances

Accounts receivable are recorded at the amount invoiced, provided the revenue recognition criteria have been met, less allowances for doubtful accounts and credit memos. We maintain allowances for doubtful accounts and credit memos on an aggregate basis, at a level we consider sufficient to cover estimated losses in the collection of our accounts receivable and credit memos expected to be issued. The allowance is based primarily upon historical credit loss experience by aging category, with consideration given to current economic conditions and trends, the collectability of specific customer accounts and customer concentrations. We charge off accounts receivable after reasonable collection efforts are made.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining lease term plus expected renewals or the estimated useful life of the asset. Amortization of capital leases is included in depreciation expense. The estimated useful lives of our capital assets (excluding capital assets obtained in the purchase of a business) are principally as follows:

Category		Useful Life

Software		3 - 4 years
Computer equipment		4 years
Furniture and fixtures		5 years
Network equipment		5 years
Machinery and equipment		7 years

Long-Term Investments

During 2012, we wrote-down the carrying value of two of our investments totaling $2.4 million. The loss is recorded in other expense.

Leases

We lease certain properties under operating leases, generally for periods of 3 to 10 years. Some of our leases contain renewal options and escalating rent provisions. For leases that provide for escalating rent payments or free-rent occupancy periods, we recognize rent expense on a straight-line basis over the non-cancelable lease term plus option renewal periods where failure to exercise an option appears, at the inception of the lease, to be reasonably assured. Deferred rent is included in both accrued liabilities and other non-current liabilities in the consolidated balance sheets.

Software Development Costs

Costs incurred to create software for internal use are expensed during the preliminary project stage and only costs incurred during the application development stage are capitalized. Upon placing the completed project in service, capitalized software development costs are amortized over the estimated useful life which is generally three years.

Depreciation of capitalized software development costs for the years ended December 31, 2012, 2011 and 2010 was $8.5 million, $5.6 million and $7.5 million, respectively. The net book value of capitalized software development costs was $16.1 and $12.2 million as of December 31, 2012 and 2011, respectively.

Derivative Financial Instruments

We enter into foreign currency forward contracts and options to hedge the exposure to the variability in expected future cash flows resulting from changes in related foreign currency exchange rates between the New Israeli Shekel ("NIS") and the U.S. Dollar. Portions of these transactions are designated as cash flow hedges, as defined by Accounting Standards Codification ("ASC") Topic 815, "Derivatives and Hedging."

ASC Topic 815 requires that we recognize derivative instruments as either assets or liabilities in our balance sheet at fair value. These contracts are Level 2 fair value measurements in accordance with ASC Topic 820, "Fair Value Measurements and Disclosures." For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss), net of taxes, and reclassified into earnings (other income and expense) in the same period or periods during which the hedged transaction affects earnings.

Our cash flow hedging strategy is to hedge against the risk of overall changes in cash flows resulting from certain forecasted foreign currency rent and salary payments during the next 12 months. We hedge portions of our forecasted expenses denominated in the NIS with foreign currency forward contracts and options. At December 31, 2012, we had $13.0 million notional amount of foreign currency forward contracts and options outstanding that had a net fair value asset balance of $0.4 million ($0.5 million asset, net of a $0.1 million liability). The net asset is included in "other current assets" and is expected to be recognized in our results of operations in the next 12 months. As a result of our hedging activities, in 2012 we incurred a loss of $0.6 million of which $0.5 million is included in various operating expenses and $0.1 million is included in other expense. It is our policy to offset fair value amounts recognized for derivative instruments executed with the same counterparty. In connection with our foreign currency forward contracts and options and other banking arrangements, we have agreed to maintain $1.6 million of cash in bank accounts with our counterparty.

During a portion of 2010, we had interest rate swaps outstanding that were used to eliminate the variability in interest payment cash flows associated with variable interest rates. The swaps, in effect, converted variable rates of interest into fixed rates of interest. Certain of our swaps were designated and qualified for cash flow hedge accounting. The interest rate swaps were terminated in 2010 in connection with the retirement of all of our then outstanding debt.

Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss, net of tax, during the years ended December 31, 2012, 2011 and 2010 were as follows:

	Unrealized Gain (Loss) on Foreign Currency Derivatives			Unrealized Gain (Loss) on Available for Sale Securities			Foreign Currency Translation			Interest Rate Swaps			Total Accumulated Other Comprehensive Income (Loss)

Balance at December 31, 2009	$	—		$	—		$	(61	)	$	(1,362	)	$	(1,423	)
Change during 2010		—			—			36			1,362			1,398

Balance at December 31, 2010		—			—			(25	)		—			(25	)
Change during 2011		(284	)		275			(3,747	)		—			(3,756	)

Balance at December 31, 2011		(284	)		275			(3,772	)		—			(3,781	)
Change during 2012		657			(279	)		1,748			—			2,126

Balance at December 31, 2012	$	373		$	(4	)	$	(2,024	)	$	—		$	(1,655	)

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired. We test goodwill for potential impairment on an annual basis, or more frequently if an event occurs or circumstances exist indicating goodwill may not be recoverable. Such events or circumstances may include a decline in our market capitalization below our total stockholders' equity, or significant underperformance of future operating results or other significant negative industry trends. In evaluating goodwill for potential impairment, we perform a two-step process that begins with an estimate of the fair value of each reporting unit that contains goodwill. We use a variety of methods, including discounted cash flow models, to determine fair value. In the event a reporting unit's carrying value exceeds its estimated fair value, evidence of a potential impairment exists. In such a case, the second step of the impairment test is required, which involves allocating the fair value of the reporting unit to its assets and liabilities, with the excess of fair value over allocated net assets representing the implied fair value of its goodwill. An impairment loss is measured as the amount, if any, by which the carrying value of a reporting unit's goodwill exceeds its implied fair value. During 2012 we recorded goodwill impairment losses totaling $219.6 million related to our online reporting unit. At December 31, 2012, the fair value of the television and SourceEcreative reporting units exceeded their carrying value by approximately 13% and 977%, respectively, and the fair value of our online reporting unit approximated its carrying value. See Note 5 for additional information.

Long-Lived Assets

We assess our long-lived assets, including acquired intangibles, for potential impairment whenever certain triggering events occur. Events that may trigger an impairment review include the following:

•

significant underperformance relative to historical or projected future operating results;

•

significant changes in the use of our assets or the strategy for our overall business;

•

significant negative industry or economic trends;

•

significant declines in our stock price for a sustained period; and

•

whenever our market capitalization approaches or falls sufficiently below our total stockholders' equity.

If we determine the carrying value of our long-lived or intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we assess the recoverability of these assets by determining whether amortization of the asset balance over its remaining life can be recovered through undiscounted future operating cash flows. Any impairment is determined based on a projected discounted cash flow model using a discount rate reflecting the risk inherent in the projected cash flows. In 2011 and 2010, we determined that our Springbox unit (which is classified as a discontinued operation) was impaired. We sold our Springbox unit in June 2012. See Note 10.

We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each asset. Factors considered when determining useful lives include the contractual term of any agreement, the history of the asset, our long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have finite lives are generally amortized on a straight-line basis over their useful lives which generally range from 3 to 15 years. See Note 5.

Deferred Revenue

Deferred revenue represents payments by customers for (i) subscriptions and membership services, (ii) progress billings and (iii) network access and maintenance fees, in advance of when the service is provided and the related revenue is recognized. Deferred revenue consists of the following (in thousands):

	December 31,

	2012		2011
Deferred subscription and membership fees	$	1,400	$	1,373
Progress billings not yet recognized as revenue		227		1,101

Total	$	1,627	$	2,474

Foreign Currency Translation and Measurement

We translate the assets and liabilities of our non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive loss in shareholders' equity. Gains or losses from measuring foreign currency transactions into the function currency are included in our statements of operations.

Revenue Recognition

We derive revenue primarily from (i) the distribution of digital and analog video and audio media content, (ii) volume-based fees for using our online ad serving platforms, (iii) media research resources, and (iv) support and other services. Revenue is recognized net of sales taxes collected. We recognize revenue only when all of the following criteria have been met:

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Persuasive evidence of an arrangement exists,

•

Delivery has occurred or services have been rendered,

•

Our price to the customer is fixed or determinable, and

•

Collectability is reasonably assured.

Below are descriptions of our services and other offerings, and generally the triggering point of revenue recognition, provided all other revenue recognition criteria have been met.

Our services revenue from the digital distribution of video and audio advertising content in our television segment generally is billed based on a rate per transmission, and we recognize revenue for these services upon notification that the advertising content was received at the broadcast destination. Revenue for the distribution of analog video and audio content by tape is recognized when delivery has occurred, which is at the time the tapes are delivered to a common carrier. Shipping and handling costs are included in costs of revenue.

We offer online advertising campaign management and deployment products in our online segment. These products allow publishers, advertisers, and their agencies to manage the process of deploying online advertising campaigns. We charge our customers on a cost per thousand ("CPM") impressions basis, and recognize revenue when the impressions are served.

Our services revenue includes access rights. For an agreed upon fee, we provide certain of our customers with access to our digital distribution network for a stated period. Using our network, these customers are able to deliver a variety of programming content to their intended destinations. Access rights revenue is recognized ratably over the access period. We also charge fees to monitor our network on behalf of our customers. The monitoring fees are recognized ratably over the monitoring period.

We sell monthly, quarterly, semi-annual and annual subscriptions to access our online creative research database. We recognize revenue ratably over the subscription period.

Media production and duplication includes a variety of ancillary services, such as storage of client masters or other physical material. Revenue for these services is recognized ratably over the storage period. Revenue related to our other services is recognized on a per transaction basis after the service has been performed. If the service results in a tape or other deliverable, revenues are recognized when delivery has occurred, which is at the time the tape or other deliverable is delivered to a common carrier.

Customers pay a fixed fee per month for our media asset management and broadcast verification services. Revenue for these services is recognized ratably over the service period.

Research and Development Expenses

Research and development expenses mainly include costs associated with maintaining our technology platforms and are expensed as incurred.

Acquisition and Integration Expenses (Including Corporate Strategic Alternatives)

Acquisition and integration expenses generally include expenses incurred in acquiring a business (e.g., investment banking fees, legal fees) and costs to integrate the acquired operations (e.g., severance pay, office closure costs). A summary of our acquisition and integration expenses is as follows (in thousands):

Description	2012		2011		2010

Investment banking fees	$	—	$	8,761	$	—
Legal, accounting and due diligence fees		750		4,085		269
Severance		4,510		1,094		—
Integration costs		1,655		526		—
Corporate strategic alternatives		1,398		—		—
Other		200		653		—

Total	$	8,513	$	15,119	$	269

We recorded exit costs related to discontinuing certain activities and personnel. Below is a rollforward of exit costs from December 31, 2009 to December 31, 2012 (in millions):

Category	Balance at December 31, 2009		New Charges		Plus Interest Accretion and/or Less Cash Payments			Balance at December 31, 2010		New Charges		Plus Interest Accretion and/or Less Cash Payments			Balance at December 31, 2011		New Charges		Plus Interest Accretion and/or Less Cash Payments			Balance at December 31, 2012

Employee severance	$	0.1	$	—	$	(0.1	)	$	—	$	1.1	$	(0.3	)	$	0.8	$	4.5	$	(5.0	)	$	0.3
Office closures		2.6		—		(1.0	)		1.6		—		(0.3	)		1.3		—		(0.9	)		0.4
Unfavorable contract		0.5		—		—			0.5		—		(0.1	)		0.4		—		0.1			0.5

Total	$	3.2	$	—	$	(1.1	)	$	2.1	$	1.1	$	(0.7	)	$	2.5	$	4.5	$	(5.8	)	$	1.2

Severance costs for 2012 amounted to $4.5 million; $3.0 million of which relates to the online segment and $1.5 million relates to the television segment. Costs incurred by the online segment resulted from consolidating the workforces of MediaMind, EyeWonder, and Unicast and eliminating redundancy. Severance costs incurred by the television segment relate to eliminating redundant workforce as we completed the integration of our MIJO and Matchpoint acquisitions, as well as ongoing cost containment efforts. As of December 31, 2012, our integration efforts were substantially complete. The office closures principally relate to our acquisition of Vyvx in 2008.

Share-based Payments

From time to time the compensation committee of our board of directors authorizes the issuance of stock options, restricted stock and restricted stock units to our employees and directors. The committee approves grants only out of shares previously authorized by our stockholders. Share-based payments can also arise from acquisitions when we agree to assume the obligations of an acquired company, such as the case in our acquisition of MediaMind.

We recognize compensation expense based on the estimated fair value of the share-based payments. The fair value of restricted stock and restricted stock units is based on the closing price of our common stock the day prior to the date of grant. The fair value of stock options is calculated using the Black Scholes option pricing model. Share-based awards that do not require future service are expensed immediately. Share-based awards that require future service are amortized over the relevant service period. We recognized $17.5 million, $12.4 million and $4.8 million in share-based compensation expense related to stock options, restricted stock and restricted stock units during the years ended December 31, 2012, 2011 and 2010, respectively. We recognized tax benefits of $0.0 million, $0.0 million and $0.9 million related to share-based awards during the years ended December 31, 2012, 2011 and 2010, respectively. See Note 12.

Income Taxes

We establish deferred income tax assets and liabilities for temporary differences between the tax and financial accounting bases of our assets and liabilities. The tax effects of such differences are recorded in the balance sheet at the enacted tax rates expected to be in effect when the differences reverse. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. The ultimate realization of our deferred tax assets is primarily dependent upon generating taxable income during the periods in which those temporary differences become deductible. The tax balances and income tax expense recognized by us are based on our interpretation of the tax statutes of multiple jurisdictions and judgment. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position. See Note 9.

We account for uncertain tax positions in accordance with ASC 740 which contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We reevaluate our income tax positions periodically to consider factors such as changes in facts or circumstances, changes in or interpretations of tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision.

We include interest related to tax issues as part of income tax expense in our consolidated financial statements. We record any applicable penalties related to tax issues within the income tax provision.

Business Combinations

Business combinations are accounted for using the acquisition method. The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill. Operating results of acquired businesses are included in our results of operations from the respective dates of acquisition. See Note 3.

Financial Instruments and Concentration of Credit Risk

Financial instruments that could subject us to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Generally, our cash is held at large financial institutions and our cash equivalents consist of highly liquid money market funds. We perform ongoing credit evaluations of our customers, generally do not require collateral and maintain a reserve for potential credit losses. We believe that a concentration of credit risk related to our accounts receivable is limited because our customers are geographically dispersed and the end users are diversified across several industries. Our receivables are principally from advertising agencies, direct advertisers, and syndicated programmers. Our receivables and related revenues are not contingent on our customers' sales or collections. See Note 8.

Recently Adopted and Recently Issued Accounting Guidance

Adopted

Effective January 1, 2012, we adopted ASU 2011-04 issued by the Financial Accounting Standards Board ("FASB"). ASU 2011-04 conforms existing guidance regarding fair value measurement and disclosure between GAAP and International Financial Reporting Standards. These changes both clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements and amend certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The clarifying changes relate to the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity's shareholders' equity, and disclosure of quantitative information about unobservable inputs used for Level 3 fair value measurements. The amendments relate to measuring the fair value of financial instruments that are managed within a portfolio; application of premiums and discounts in a fair value measurement; and additional disclosures concerning the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entity's use of a nonfinancial asset in a way that differs from the asset's highest and best use, and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes only. The adoption of ASU 2011-04 did not have a material impact on our consolidated financial statements.

Effective January 1, 2012, we adopted ASU 2011-05 issued by the FASB. ASU 2011-05 changes the options available when presenting comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. The adoption of ASU 2011-05 only changed the presentation of comprehensive income.

Issued

In December 2011, the FASB issued ASU 2011-11, "Disclosures about Offsetting Assets and Liabilities," which requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. The guidance is effective for us on January 1, 2013 and is to be applied retrospectively. The adoption of ASU 2011-11 is not expected to have a material impact on our consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, "Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," which provides entities with the option to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If the entity concludes that it is more likely than not that the asset is impaired, it is required to determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with Topic 350. If the entity concludes otherwise, no further quantitative assessment is required. ASU 2012-02 is effective for us on January 1, 2013. We do not expect the adoption of ASU 2012-02 will have a material impact on our consolidated financial statements.

Reclassifications

Prior to 2012 we classified all share-based compensation in general and administrative expense. In 2012, we began classifying share-based compensation in the operating expense line item where the respective employee's cash compensation was captured. As a result, we have reclassified our 2011 share-based compensation amounts to be consistent with the 2012 presentation. No reclassification in the 2010 period was necessary. Below are the financial statement line items where share-based compensation has been included for the years ended December 31, 2012, 2011 and 2010 (in thousands):

			2011

	2012		As Reported		As Adjusted		2010
Cost of revenues	$	1,902	$	—	$	1,744	$	—
Sales and marketing		3,443		—		2,130		—
Research and development		1,696		—		1,324		—
General and administrative		10,429		12,430		7,232		4,805

Total	$	17,470	$	12,430	$	12,430	$	4,805