Classmates.com 2005 Annual Report Download - page 57

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Off
-
Balance Sheet Arrangements
At December 31, 2005, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of our financial condition and results of operations is based upon our audited and unaudited consolidated
financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) including those for
interim financial information and with the instructions for Form 10-K and Article 10 of Regulation S-X issued by the Securities and Exchange
Commission (“SEC”). The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities and the reported amounts of revenues
and expenses. Actual results could differ from those estimates. The results of operations for interim or transition periods are not necessarily
indicative of the operating results for a full year.
The following is a discussion of the accounting policies and related estimates that we believe are most critical to understanding our
consolidated financial statements, financial position and results of operations and which require complex management judgments, uncertainties
and/or estimates.
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. We
also apply the provisions of Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables .
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. Our pay accounts 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 pay accounts 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 ACH, 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 primarily consist of fees from Internet search partners that are generated as a result of our active
accounts utilizing partner Internet search services, fees generated by our active accounts viewing or clicking on third-party advertisements, fees
generated by enabling customer registrations for partners and fees from referring our active accounts to, or from our active accounts 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. 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.
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