Classmates.com 2009 Annual Report Download - page 119

Table of Contents
UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Advertising revenues from the Company's online social networking services and from 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 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 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, the Company ensures that a written contract is in place, such as a standard insertion order or a
customer-specific agreement. The Company assesses 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 the Company's internally-tracked performance data to the contractual performance
obligation and, when available, to third-party or customer-provided performance data.
Advertising revenues for the Company's online 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.
Cost of Revenues —Cost of revenues primarily includes product costs; shipping and delivery costs; costs associated with taking orders;
printing and postage costs; costs related to FTD's product quality guarantee; systems installation, training and support costs; costs of points
earned by members of the Company's online loyalty marketing service; telecommunications and data center costs; personnel-and overhead-
related costs associated with operating the Company's networks and data centers; depreciation of network computers and equipment; email
support and license fees; costs related to providing telephone support; customer billing and billing support for the Company's pay accounts and
floral network members; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name
registration fees.
Sales and Marketing —Sales and marketing expenses include expenses associated with promoting the Company's brands, products and
services and with generating advertising revenues. Expenses associated with promoting the Company's brands, products and services include
advertising and promotion expenses; fees paid to distribution partners, third-party advertising networks and co-registration partners to acquire
new pay and free accounts; personnel and overhead-related expenses for marketing, merchandising, customer service and sales personnel; and
telemarketing costs incurred to acquire and retain pay accounts and up-sell pay accounts to additional services. Expenses associated with
generating advertising revenues include sales commissions and personnel-related expenses. The Company has expended significant amounts on
sales and marketing, including branding and customer acquisition
F-16