Stamps.com 2008 Annual Report Download - page 44

STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
Under SFAS No. 142, 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, 2008, 2007, or 2006.
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, 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.
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 NetStamps, shipping label or mailing features, 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.
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 immaterial during the years
ended December 31, 2008, 2007 and 2006.
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.
Revenue from gift cards, which is recognized at the time of redemption, is currently immaterial to our financial statements.
Because we do not yet have meaningful historical data upon which to base estimates for gift cards that will never be redeemed
(“breakage”), we have not recorded any breakage income related to our gift card program.
F-8
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STAMPS.COM INC.