Classmates.com 2007 Annual Report Download - page 41

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Critical Accounting Policies, Estimates and Assumptions
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 accounting principles generally accepted in the United States of America, or
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
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, disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results
could differ from those estimates and assumptions. The results of operations for interim or transition periods are not necessarily indicative of the
operating results for a full year.
We apply the following critical accounting policies in the preparation of our consolidated financial statements:
Revenue Recognition
Our revenues are comprised of billable services revenues, which are derived primarily from fees charged to pay accounts, and advertising
revenues. We apply the provisions of SEC Staff Accounting Bulletin, or 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. We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or
determinable, no significant Company obligations remain, and collectibility is reasonably assured. We also apply the provisions of Emerging
Issues Task Force, or 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 services are provided to the
customer. Our pay accounts generally pay in advance for their service by credit card, and revenue is then recognized ratably over the service
period. Advance payments from pay accounts are recorded on the consolidated balance sheets as deferred revenue. We offer alternative payment
methods to credit cards for certain pay service plans. These alternative payment methods currently include ACH, 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 revenues consist primarily of amounts from Internet search partners that are generated as a result of users utilizing partner
Internet search services, amounts generated from the display of third-party registration offers at the end of Classmates' pay account registration
process, amounts generated from other display advertisements, and amounts generated from referring members to third-party Web sites or
services. We recognize advertising revenues in the period in which the advertisement is displayed or, for performance-
based arrangements, when
the related performance criteria are met. In determining whether an arrangement exists, we ensure that a binding 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, when available, to third-party or customer-provided performance data.
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