Travelzoo 2006 Annual Report Download - page 67

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The Company recognizes revenues in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 104, “Revenue Recognition.” Advertising revenues are recognized in the period in which the
advertisement is displayed, provided that evidence of an arrangement exists, the fees are fixed or determinable
and collection of the resulting receivable is reasonably assured. Where collectibility is not reasonably assured, the
revenue will be recognized upon cash collection, provided that the other criteria for revenue recognition have been
met. The Company recognizes revenue for fixed-fee advertising arrangements ratably over the term of the insertion
order 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 fixed 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 fixed 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 client is perceived to
be in financial distress, which may be evidenced by weak industry condition, bankruptcy filing, or
previously billed amounts that are past due.
The Company’s standard payment terms are net 30 days. Insertion orders that include fixed-fee advertising are
invoiced upon acceptance of the insertion order and on the first day of each month over the term of the insertion
order, with the exception of Travelzoo Top 20 or Newsflash listings, which are invoiced upon delivery. Insertion
orders that include variable-fee advertising are invoiced at the end of the month. The Company’s standard terms
state that in the event that Travelzoo fails to publish advertisements as specified in the insertion order, the liability of
Travelzoo to the client shall be limited to, at Travelzoo’s sole discretion, a pro rata refund of the advertising fee, the
placement of the advertisements at a later time in a comparable position, or the extension of the term of the insertion
order until the advertising is fully delivered. The Company believes that no significant obligations exist after the full
delivery of advertising.
Revenues from advertising sold to clients through agencies are reported at the net amount billed to the agency.
(c) Net Income Per Share
Net income per share has been calculated in accordance with Statement of Accounting Standards (“SFAS”)
No. 128, “Earnings per Share.” Basic net income per share is computed using the weighted-average number of
common shares outstanding for the period, including shares reserved for issuance to former stockholders of
40
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)