Classmates.com 2006 Annual Report Download - page 72

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 reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments— The Company considers cash equivalents to be only those investments which are
highly liquid, readily convertible to cash and which have a maturity date within ninety days from the date of purchase. The Company’s short-
term investments consist of available-for-sale securities with original maturities exceeding ninety days. Consistent with Statement of Financial
Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has classified these
securities, all of which have readily determinable fair values and are highly liquid, as short term because the sale of such securities may be
required prior to maturity to implement management’s strategies. The Company has short-term investments primarily in U.S. commercial paper,
U.S. Government or U.S. Government Agency obligations, municipal obligations, auction rate securities and money market funds. The
minimum long-term credit rating is A, and if a long-term rating is not available, the Company requires a minimum short-term credit rating of A1
and P1. The Company’s short-term investments are reported at fair value, with unrealized gains and losses, net of taxes, recorded in the
consolidated statements of comprehensive income. Realized gains or losses and permanent declines in value, if any, on available-for-sale
securities are reported in other income or expense. The cost basis of a security that has been sold and any amount reclassified out of accumulated
other comprehensive income into earnings is determined by the specific identification method. Significant fluctuations in short-term interest
rates could have a material impact on interest income and unrealized gains and losses from the Company’s investment portfolio.
The primary objectives of the Company’s short-term investment portfolio are preservation of principal and liquidity while maximizing
yield. Investments are made to achieve the highest possible rate of return for the Company, consistent with these two objectives.
The Company classifies outstanding interest payments due on its short-term investments as interest receivable, the balance of which is
reflected in other current assets.
The Company assesses whether an other-than-temporary impairment loss on its investments has occurred due to declines in fair value or
other market conditions. Declines in fair value that are considered other than temporary are recorded as an impairment charge in the consolidated
statements of income. During the years ended December 31, 2006, 2005 and 2004, the Company did not record any such impairment charges.
Restricted Cash— Restricted cash, which is included in other current assets and other assets, consists of certificates of deposit and, in
general, collateralizes the Company’s obligations for operating leases and amounts held in escrow related to certain of the Company’s merchant
services agreements.
Concentrations of Credit and Business Risk— Financial instruments that potentially subject the Company to a concentration of credit risk
consist of cash and cash equivalents, short-term investments and accounts receivable. The Company’s accounts receivable are derived primarily
from revenue earned from pay accounts and advertising customers located in the United States. The Company extends credit based upon an
evaluation of the customer’s financial condition and, generally, collateral is not required. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of accounts receivable, and, to date, such losses have been within management’s expectations.
The Company evaluates specific accounts where information exists that the customer may have an inability to meet its financial obligations.
In these cases, based on the best available facts and circumstances, a specific reserve is recorded for that customer against amounts due to reduce
the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is
received that impacts the amount reserved. Also, a general reserve is established for all customers based on the aging of the receivables. If
circumstances change (i.e., higher
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