Classmates.com 2007 Annual Report Download - page 95

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UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
has the ability to adjust the number of points required to redeem awards to reflect changes in the cost of awards.
On a monthly basis, MyPoints accounts for and reduces the gross points issued by an estimate of points that will never be redeemed by its
members. This reduction is calculated based on an analysis of historical point-earning trends, redemption activities and individual member
account activity, in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-22, Accounting for Points and Certain Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products and Services to be Delivered in the Future . MyPoints' historical analysis
takes into consideration the total points in members' accounts that have been inactive for six months or longer, less an estimated reactivation rate,
plus an estimate of future inactive points. Changes in, among other factors, the net number of points issued, redemption activities and members'
activity levels could materially impact the member redemption liability.
Points in active accounts do not expire. However, under the terms and conditions of membership in MyPoints' loyalty marketing program,
MyPoints reserves the right to cancel or disable accounts and expire unredeemed points in accounts that are inactive for a period of twelve
consecutive months. For purposes of the member redemption liability, "inactive" means a lack of any of the following: Web site visit; email
response; survey completion; profile update; or any point-earning or point-redeeming transaction. The cancelling or disabling of inactive
accounts would have no impact on the Company's consolidated financial statements, as the Company fully considers inactive accounts when
establishing the member redemption liability, as discussed above.
Revenue Recognition— The Company's revenues are comprised of billable services revenues, which are derived primarily from fees
charged to pay accounts, and advertising revenues. The Company applies 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 Securities and Exchange Commission ("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. The Company recognizes 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. The Company also applies the provisions of 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. The Company's 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. The Company offers
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. The Company recognizes advertising revenues in the period in which the
F-13