Stamps.com 2007 Annual Report Download - page 30

We believe our available cash and marketable securities, together with the cash flow from operations will be sufficient to
fund our business for at least the next twelve months.
Critical Accounting Policies
General . The discussion and analysis of our financial condition and results of operations are based on our financial
statements which have been prepared in accordance with US generally accepted accounting principles. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to patents, contingencies and litigation. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our financial statements.
Revenue Recognition
We recognize revenue from product sales or services rendered, as well as from licensing the use of our software and
intellectual property, when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably
assured.
Our service revenue is based on monthly convenience fees and is recognized in the period that services are provided. Product
sales, net of return allowances, are recorded when the products are shipped and title passes to customers. Sales of items,
including PhotoStamps, to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss
upon our delivery to the carrier. Return allowances for expected product returns, which reduce product revenue, are estimated
using historical experience. We recognize licensing revenue ratably over the contract period. Commissions from the advertising
or sale of products by a third party vendor to our customer base are recognized when the revenue is earned and collection is
deemed probable. We recognize revenue on insurance purchases upon the ship date of the insured package.
Intangibles
We make an assessment of the estimated useful lives of our patents and other amortizable intangibles. These estimates are
made using various assumptions that are subjective in nature and could change as economic and competitive conditions change.
If events were to occur that would cause our assumptions to change, the amounts recorded as amortization would be adjusted.
Contingencies and Litigation
We are involved in various litigation matters as a claimant and as a defendant. We record any amounts recovered in these
matters when collection is certain. We record liabilities for claims against us when the losses are probable and estimable. Any
amounts recorded would be based on reviews by outside counsel, in-house counsel and management. Actual results may differ
from estimates.
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Promotional Expense
New PC Postage customers are typically offered promotional items that are redeemed using coupons that are qualified for
redemption after a customer is successfully billed beyond an initial trial period. This includes free postage and a free digital scale
and is expensed in the period in which a customer qualifies using estimated redemption rates based on historical data.
Promotional expense which is included in cost of service is incurred as customers qualify and thereby may not correlate directly
with changes in revenue as the revenue associated with the acquired customer is earned over the customer’s lifetime.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), which addresses how
companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles. SFAS 157 defines fair value, establishes a framework for measuring fair value in