Travelzoo 2004 Annual Report Download - page 38

When evaluating the Ñnancial condition and operating performance of the Company, management
focuses on the following Ñnancial and non-Ñnancial indicators:
‚ Growth of number of subscribers of the Company's newsletters and page views of selected sections of
the Travelzoo Web site;
‚ Growth in revenues in the absolute and relative to the growth in reach of the Company's products;
‚ Operating margin;
‚ Revenue per employee as a measure of productivity.
Critical Accounting Policies
We believe that there are a number of accounting policies that are critical to understanding our historical
and future performance, as these policies aÅect the reported amounts of revenue and the more signiÑcant
areas involving management's judgments and estimates. These signiÑcant accounting policies relate to revenue
recognition, the allowance for doubtful accounts, recoverability of intangible assets, and liabilities to former
stockholders. These policies, and our procedures related to these policies, are described in detail below.
Revenue Recognition
We recognize revenue on arrangements in accordance with Securities and Exchange Commission StaÅ
Accounting Bulletin No. 104, Revenue Recognition. We recognize advertising revenues in the period in which
the advertisement is displayed, provided that evidence of an arrangement exists, the fees are Ñxed or
determinable and collection of the resulting receivable is reasonably assured. If Ñxed-fee advertising is
displayed over a term greater than one month, revenues are recognized ratably over the period. The Company
recognizes revenue for Ñxed-fee advertising arrangements ratably over the term of the insertion order. The
majority of insertion orders have terms that begin and end in a quarterly reporting period. In the cases where
at the end of a quarterly reporting period the term of an insertion order is not complete, the Company
recognizes revenue for the period by pro-rating the total arrangement fee to revenue and deferred revenue
based on a measure of proportionate performance of its obligation under the insertion order. The Company
measures proportionate performance by the number of placements delivered and undelivered as of the
reporting date. The Company uses prices stated on its internal rate card for measuring the value of delivered
and undelivered placements. Fees for variable-fee advertising arrangements are recognized based on the
number of impressions displayed or clicks delivered during the period.
Under these policies, no revenue is recognized unless persuasive evidence of an arrangement exists,
delivery has occurred, the fee is Ñxed or determinable, and collection is reasonably assured. The Company
evaluates each of these criteria as follows:
‚Evidence of an arrangement. We consider an insertion order signed by the client or its agency to be
evidence of an arrangement.
‚Delivery. Delivery is considered to occur when the advertising has been displayed and, if applicable,
the clickthroughs have been delivered.
‚Fixed or determinable fee. We consider the fee to be Ñxed or determinable if the fee is not subject to
refund or adjustment and payment terms are standard.
‚Collection is reasonably assured. We conduct a credit review for all transactions at the time of the
arrangement to determine the creditworthiness of the client. Collection is deemed reasonably assured if
we expect that the client will be able to pay amounts under the arrangement as payments become due.
If we determine that collection is not reasonably assured, then we defer the revenue and recognize the
revenue upon cash collection. Collection is deemed not reasonably assured when a client is perceived to
be in Ñnancial distress, which may be evidenced by weak industry conditions, a bankruptcy Ñling, or
previously billed amounts that are past due.
Advertising sold to clients through agencies is reported at the net amount billed to the agency.
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