Classmates.com 2008 Annual Report Download - page 53

Table of Contents
non-revenue generating activities which are presented in sales and marketing expenses. The member redemption liability is recognized when
members earn points and is reduced when members redeem accumulated points upon reaching required redemption thresholds or when points
are expired prior to redemption.
MyPoints members may redeem points for third-party gift cards and other rewards. Members earn points when they respond to direct
marketing offers delivered by MyPoints, purchase goods or services from advertisers, engage in certain promotional campaigns of advertisers, or
engage in other specified activities.
The member redemption liability is estimated based upon the weighted-average cost and number of points that may be redeemed in the
future. On a monthly basis, the weighted-average cost of points is calculated by taking the total cost of items fulfilled divided by total points
redeemed. The discounts and points needed to redeem awards vary by merchant and award denomination. MyPoints purchases gift cards and
other awards from merchants at a discount and sets redemption levels for its members. MyPoints 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 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. A 1% increase or decrease in the estimate of points that will never be redeemed would
increase or decrease our member redemption liability at December 31, 2008 by approximately $99,000.
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 all of the following: Web site visit; email
response; survey completion; profile update; or any point-earning or point-redeeming transaction. The canceling or disabling of inactive
accounts would have no impact on our consolidated financial statements, as we fully consider inactive accounts when establishing the member
redemption liability, as discussed above.
The following table sets forth, for the periods presented, a reconciliation of the changes in the member redemption liability (in thousands):
51
Year Ended December 31,
2008
2007
Beginning balance
$
24,560
$
19,989
Accruals for points earned
23,356
23,745
Reduction for redeemed points
(22,604
)
(18,857
)
Converted points
1,846
—
Changes in allowance for points expected to expire and weighted
-
average cost of points
(1,182
)
(633
)
Imputed interest on acquired member redemption liability
—
316
Ending balance
$
25,976
$
24,560