Enom 2012 Annual Report Download - page 55

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50
forwards as a result of our previous ownership changes. If an ownership change is deemed to have occurred as a result of our
initial public offering, potential near term utilization of these assets could be reduced.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and
assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we
believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with our revenue recognition, accounts receivable and allowance
for doubtful accounts, capitalization and useful lives associated with our intangible assets, including our internal software and
website development and content costs, income taxes, stock-based compensation and the recoverability of our goodwill and
long-lived assets including our media content portfolio and gTLD applications, have the greatest potential impact on our
consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Revenue Recognition
We recognize revenue when four basic criteria are met: persuasive evidence of a sales arrangement exists; performance of
services has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. We consider persuasive
evidence of a sales arrangement to be the receipt of a signed contract. Collectability is assessed based on a number of factors,
including transaction history and the credit worthiness of a 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. We
record cash received in advance of revenue recognition as deferred revenue.
Content & Media
Advertising Services
In determining whether an arrangement for our advertising services exists, we ensure that a binding arrangement is in
place, such as a standard insertion order or a fully executed customer-specific agreement. Obligations pursuant to our
advertising revenue arrangements typically include a minimum number of impressions or the satisfaction of the other
performance criteria. Revenue from performance-based arrangements, including cost-per-click and referral revenues, is
recognized as the related performance criteria are met. We assess whether performance criteria have been met and whether our
fees are fixed or determinable based on a reconciliation of the performance criteria and an analysis of the payment terms
associated with a transaction. The reconciliation of the performance criteria generally includes a comparison of third-party
performance data, such as periodic online reports provided by certain of our customer websites, to the contractual performance
obligation and to internal or customer performance data in circumstances where such data is available. Historically, any
difference between the amounts recognized based on preliminary information and cash collected has not been material to our
results of operations.
Where we enter into revenue sharing arrangements with our customers, such as for the online version of the San Francisco
Chronicle or with respect to undeveloped customer websites, and when we are considered the primary obligor, we report the
underlying revenues on a gross basis in our consolidated statements of operations. In circumstances where the customer acts as
the primary obligor, such as YouTube, we recognize the underlying revenue on a net basis in our statement of operations.
Content Revenue
Content revenue is generated through the sale or license of media content. Revenue from the sale or perpetual license of
content is recognized when the content has been delivered and the contractual performance obligations have been fulfilled.
Revenue from the license of content is recognized over the period of the license as content is delivered or when other related
performance criteria are fulfilled.
Subscription and Social Media Services
Subscription services revenue is generated through the sale of membership fees paid to access content available on certain
owned and operated websites, such as Trails.com. Historically, the majority of the memberships ranged from six to twelve
month terms, and generally renew automatically at the end of the membership term, if not previously canceled.
Membership revenue is recognized on a straight-line basis over the membership term.