Travelzoo 2005 Annual Report Download - page 41

advertising agreements Ì typically $2,000 or less per month Ì typically renew automatically each month if
they are not terminated by the client. Larger agreements are typically related to advertising campaigns and are
not automatically renewed.
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 the homepages of the
Travelzoo Web sites;
‚ Operating margin;
‚ Growth in revenues in the absolute and relative to the growth in reach of the Company's publications;
‚ 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, 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 as described
below. 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 deemed reasonably assured. The
Company evaluates each of these criteria as follows:
‚Evidence of an arrangement. The Company considers 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 click-throughs have been delivered.
‚Fixed or determinable fee. The Company considers the fee to be Ñxed or determinable if the fee is not
subject to refund or adjustment and payment terms are standard.
‚Collection is deemed reasonably assured. The Company conducts 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 it is expected that the client will be able to pay amounts under the arrangement as
payments become due. If it is determined that collection is not reasonably assured, then revenue is
deferred and recognized upon cash collection. Collection is deemed not reasonably assured when a
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