Classmates.com 2004 Annual Report Download - page 82

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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, the Company recognizes
revenue related to its 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 user. The Company's pay account users 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. The Company offers alternative payment methods to credit cards for certain pay service plans. These alternative payment methods
currently include electronic check payment, payment by personal check or money order or through a 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 consist primarily of fees from Internet search partners that are generated as a result of users utilizing
partner Internet search services, fees generated by users viewing and clicking on third-party Web site banners and text-link 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 recognized provided that no significant obligations remain, fees are fixed or determinable, and collection of the related
receivable is reasonably assured. The Company recognizes banner 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. The Company's 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. In determining whether an arrangement exists, the Company ensures
that a binding contract is in place, such as a standard insertion order or a fully executed customer-specific agreement. The Company assesses
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.
Cost of Billable Services —With respect to Internet access services, cost of billable services includes direct costs of billable services and
Internet access costs that have been allocated to billable services based on the aggregate hourly usage of pay accounts as a percentage of total
hours used by active accounts. Direct costs consist of costs related to providing technical support, customer billing and billing support to pay
accounts. Allocated costs consist primarily of telecommunications and data center costs, personnel and overhead-related costs associated with
operating the Company's network and data centers, and depreciation of network computers and equipment. The Company allocates costs
associated with Web hosting between billable services and free services based on estimated bandwidth used by pay Web-hosting accounts
relative to estimated bandwidth used by free Web-hosting accounts. Costs associated with the Company's community-based networking services
are allocated based on the number of Web site visits by pay accounts relative to the total number of visits.
F-13