Classmates.com 2008 Annual Report Download - page 48

Table of Contents
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 from our social networking services and Communications services 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 such 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 written contract is in place, such as a standard insertion order or a 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.
Advertising revenues for our loyalty marketing service consist primarily of fees generated when emails are transmitted to members, when
members respond to emails and when members complete online transactions. Each of these activities is a discrete, independent activity, which
generally is specified in the sales agreement for each advertising customer. As the earning activities take place, activity measurement data
(examples include the number of emails delivered and the number of responses received) is accumulated and the related revenue is recorded.
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. Deferred revenue also represents invoiced services that have not yet been
performed.
Business Combinations
All of our acquisitions have been accounted for as purchase business combinations in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations . Under the purchase method of accounting, the costs, including
transaction costs, are allocated to the underlying net assets acquired, based on their respective estimated fair values. The excess of the purchase
price over the estimated fair values of the net assets acquired is recorded as goodwill.
The judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities
acquired can significantly impact net income. Consequently, to the extent an indefinite-lived, definite-lived or a longer-lived asset is ascribed
greater value under the purchase method than a shorter-lived asset, there may be less amortization recorded in a given period. Definite-lived
identifiable intangible assets are amortized on either a straight-line basis or an accelerated basis. We determine the appropriate amortization
method by performing an analysis of expected cash flows over the estimated useful lives of the assets and match the amortization expense to the
expected cash flows from those assets.
Determining the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates
and assumptions. Two areas, in particular, that require significant judgment are estimating the fair value and related useful lives of identifiable
intangible assets. To assist in this process, we may obtain appraisals from valuation specialists for certain intangible assets. While there are a
number of different methods used in estimating the fair value of acquired intangible assets, there are two approaches primarily used: the
discounted cash flow and
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