Classmates.com 2003 Annual Report Download - page 26

Revenue Recognition
We apply the provisions of SEC Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition in Financial Statements , which
provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 104 outlines
the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general,
we recognize revenue related to our billable services and advertising products when (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable and (iv) collectibility is reasonably assured.
Billable services revenues are recognized in the period in which fees are fixed or determinable and the related products or services are
provided to the subscriber. Our pay subscribers generally pay in advance for their service by credit card, and revenue is then recognized ratably
over the period in which the related services are provided. Advance payments from users are recorded on the balance sheet as deferred revenue.
We offer alternative payment methods to credit cards for certain pay service plans. These alternative payment methods currently include
payment by electronic check, or "ACH", personal check or money order and through a pay subscriber's local telephone company. In
circumstances where payment is not received in advance, revenue is only recognized if collectibility is reasonably assured.
Advertising and commerce revenues primarily consist of fees from Internet search partners that are generated as a result of users utilizing
partner Internet search services, fees generated by users viewing or clicking on third-
party advertisements, fees generated by enabling customer
registrations for partners and fees from referring users to, or from users making purchases on, sponsors' Web sites. Revenues are
32
recognized provided that no significant obligations remain, fees are fixed or determinable, and collection of the related receivable is reasonably
assured. We recognize advertising and sponsorship revenues in the periods in which the advertisement or sponsorship placement is displayed,
based upon the lesser of (i) impressions delivered divided by the total number of guaranteed impressions or (ii) ratably over the period in which
the advertisement is displayed. Our obligations typically include a minimum number of impressions or the satisfaction of other performance
criteria. Revenue from performance-based arrangements, including referral revenues, is recognized as the related performance criteria are met
and when the fees become fixed and determinable. In determining whether an arrangement exists, we ensure that a contract is in place, such as
a standard insertion order or a fully executed customer-specific agreement. We assess whether performance criteria have been met and whether
the fees are fixed or determinable based on a reconciliation of the performance criteria and the payment terms associated with the transaction.
The reconciliation of the performance criteria generally includes a comparison of internally tracked performance data to the contractual
performance obligation and to third-party or customer performance data in circumstances where that data is available. Probability of collection
is assessed based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If it is
determined that collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally
upon receipt of cash.
Long-lived Assets
We assess the impairment of long-lived assets, which include property and equipment and identifiable intangible assets, whenever events
or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . Events and circumstances that may indicate that an asset is
impaired include significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected
future results of operations, a change in the extent or manner in which an asset is used, significant declines in our stock price for a sustained
period, shifts in technology, loss of key management or personnel, changes in our operating model or strategy and competitive forces.
If events and circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future
cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying
value over its fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a
discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets.
Goodwill
We adopted SFAS No. 142 on July 1, 2002. Under SFAS No. 142, goodwill is no longer amortized, but is tested for impairment at a
reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value amount. Events or circumstances which could trigger an impairment review
include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated
competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business,
significant negative industry or economic trends, significant declines in our stock price for a sustained period or significant underperformance
relative to expected historical or projected future results of operations. For purposes of financial reporting and impairment testing in accordance
with SFAS No. 142, we operate in one principal business segment, a provider of Internet access services.
33