Travelzoo 2011 Annual Report Download - page 67

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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, with the exception of Travelzoo Top 20 or Newsflash insertions, which are
recognized upon delivery. 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 recognizes revenue for
the period based on elements delivered during the period. 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. The Company considers 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. 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 advertiser. Collection is deemed reasonably assured if it is expected
that the advertiser 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 advertiser 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.
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 advertiser 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 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 deals from local businesses such as spas 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.
(c) 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 Getaway 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.