Stamps.com 2013 Annual Report Download - page 41

Customers typically pay face value for postage purchased for use through our PC Postage software, and the funds are transferred directly from
the customers to the United States Postal Service (“USPS”). We do not recognize revenue for this postage, as it is purchased by our customers
directly from the USPS.
PhotoStamps revenue, which includes the face value of postage, from the sale of PhotoStamps sheets and rolls is made pursuant to a sales
contract that provides for transfer of both title and risk of loss upon our delivery to the carrier.
Sale of PhotoStamps retail boxes are initially recorded as deferred revenue. PhotoStamps revenue related to the sale of these PhotoStamps retail
boxes is subsequently recognized when either: 1) the PhotoStamps retail box is redeemed, or 2) the likelihood of the PhotoStamps retail box
being redeemed is deemed remote (“breakage”) and there is no legal obligation to remit the value of the unredeemed PhotoStamps retail boxes.
On a limited basis, we allow third parties to offer products and promotions to our customer base. These arrangements generally provide payment
in the form of a flat fee or revenue sharing arrangements where we receive payment upon customers accessing third party products and services.
Total revenue from such advertising arrangements was not significant during 2013 and 2012.
We provide our customers with the opportunity to purchase parcel insurance directly through our software. Insurance revenue represents the
gross amount charged to the customer for purchasing insurance and the related cost represents the amount paid to the insurance broker, Parcel
Insurance Plan. We recognize revenue on insurance purchases upon the ship date of the insured package.
PhotoStamps Retail Boxes
We sell PhotoStamps retail boxes that are redeemable for PhotoStamps on our website. The PhotoStamps retail boxes are sold through various
third party retail partners. Our PhotoStamps retail boxes are not subject to administrative fees on unredeemed boxes and have no expiration
date. PhotoStamps retail box sales are recorded as deferred revenue. Prior to the second quarter of 2011, revenue was recognized only on boxes
that were actually redeemed on our website.
During the second quarter of 2011, we concluded that sufficient company-specific historical evidence existed to determine the period of time
after which the likelihood of the PhotoStamps retail boxes being redeemed was remote. Based on our analysis of the redemption data, we
estimate that period of time to be 60 months after the sale of our PhotoStamps retail boxes.
Beginning in the second quarter of 2011, we began recognizing breakage revenue related to our PhotoStamps retail boxes utilizing the
redemption recognition method. Under the redemption recognition method, we recognize breakage revenue from unredeemed retail boxes in
proportion to the revenue recognized from the retail boxes that have been redeemed. Revenue from our PhotoStamps retail boxes is included in
PhotoStamps revenue. We continue to recognize retail box breakage revenue from PhotoStamps retail boxes using the redemption recognition
method. During 2013 and 2012 PhotoStamps retail box breakage revenue was approximately $115,000 and $260,000, respectively.
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.
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