Stamps.com 2009 Annual Report Download - page 59

TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
Impairment of Long-Lived Assets and Intangible Assets
Long-lived assets including intangible assets with definitive useful lives are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Goodwill and intangible assets that have indefinite useful lives are not amortized but, instead, tested at least annually for
impairment while intangible assets that have finite useful lives continue to be amortized over their respective useful lives.
Goodwill and other intangibles are tested for impairment using a two-step process. The first step is to determine the fair
value of the reporting unit, which may be calculated using a discounted cash flow methodology, and compare this value to its
carrying value. If the fair value exceeds the carrying value, no further work is required, and no impairment loss would be
recognized. The second step is an allocation of the fair value of the reporting unit to all of the reporting unit’s assets and
liabilities under a hypothetical purchase price allocation. Based on the annual evaluations performed by us, there was no
impairment during the years ended December 31, 2009, 2008 or 2007.
Deferred Revenue
We sell gift cards for our PhotoStamps product to our customers through our website and selected third parties. Proceeds
from the sale of gift cards are initially recorded as a liability when received. We record the liability for outstanding gift cards in
deferred revenue.
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.
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, sold 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.
Customers pay face value for postage purchased for use through our PC Postage software, and the funds are transferred
directly from the customers to the USPS. We do not recognize revenue for this postage, as it is purchased by our customers
directly from the USPS.
PhotoStamps revenue includes the price of postage and is made pursuant to a sales contract that provides for transfer of both
title and risk of loss upon our delivery to the carrier.
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