Travelzoo 2011 Annual Report Download - page 57

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Revenue Recognition
We recognize revenue on arrangements in accordance with the SEC Staff Accounting Bulletin for 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 fixed or determinable and collection of the resulting receivable is reasonably assured. Effective January 1, 2011, we adopted ASU
2009-13. The adoption of this new accounting standard had no material impact on the Company’s consolidated results of operations. If
fixed-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 allocates the total arrangement fee to each
element based on the relative estimated selling price of each element. The Company uses prices stated on its internal rate card, which
represents stand-alone sales prices, to establish estimated selling prices. The stand-alone price is the price that would be charged if the
advertiser purchased only the individual insertion. Fees for variable-fee advertising arrangements are recognized based on the number
of impressions displayed, number of clicks delivered, or number of referrals generated 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. We consider an insertion order signed by the advertiser 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. We consider 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. We conduct a credit review for all transactions at the time of the arrangement to
determine the creditworthiness of the advertiser. Collection is deemed reasonably assured if we expect that the advertiser
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 advertiser is perceived to be in financial distress, which may be evidenced by weak industry
conditions, a bankruptcy filing, or previously billed amounts that are past due.
Revenues from advertising sold to advertisers through agencies are reported at the net amount billed to the agency.
During the third quarter of 2010, the Company started selling vouchers for Local Deals and Getaways from local businesses
such as spas, hotels and restaurants. The Company earns a fee for acting as an agent in these transactions which is recorded on a net
basis and is included in revenue upon completion of the voucher sale. Certain merchant contracts in foreign locations allow us to
retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we recognize as revenue after the
expiration of the redemption period and after there are no further obligations to provide funds to merchants, subscribers or others.
Reserve for Subscriber Refunds
We record an estimated reserve for subscriber refunds based on our historical experience at the time revenue is recorded for
Local Deals and Getaways voucher sales. We accrue costs associated with refunds in accrued expenses on the consolidated balance
sheets. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for
refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and
breakage. Should any of these factors change, the estimates made by management will also change, which could impact the level of
our future reserves for subscriber refunds. Specifically, if the financial condition of our advertisers, the business that is providing the
vouchered service, were to deteriorate, affecting their ability to provide the services to our subscribers, additional reserves for
subscriber refunds may be required.
Estimated subscriber refunds that are determined to be recoverable from the merchant are recorded in the consolidated
statements of operations as a reduction to revenue. Estimated subscriber refunds that are determined not to be recoverable from the
merchant, are presented as a cost of revenue. If our judgments regarding estimated subscriber refunds are inaccurate, reported results
of operations could differ from the amount we previously accrued.
Allowance for Doubtful Accounts
We record a provision for doubtful accounts based on our historical experience of write-offs and a detailed assessment of our
accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, management considers the
age of the accounts receivable, our historical write-offs, the creditworthiness of the advertiser, the economic conditions of the
advertiser’s industry, and general economic conditions, among other factors. Should any of these factors change, the estimates made
by management will also change, which could impact the level of our future provision for doubtful accounts. Specifically, if the
financial condition of our advertisers were to deteriorate, affecting their ability to make payments, additional provision for doubtful
accounts may be required.