Stamps.com 2009 Annual Report Download - page 38

TABLE OF CONTENTS
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, licensing the use of our software and intellectual property as
well as commissions from advertising or sale of products by third party vendors to our customer base 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.
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
See Note 2 — Summary of Significant Accounting Policies, Recent Accounting Pronouncements of our accompanying
consolidated financial statements regarding recent accounting pronouncements and our expectation of their impact on our
consolidated financial statements.
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