Stamps.com 2008 Annual Report Download - page 45

NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
Cost of Revenue
Cost of revenue principally consists of the cost of customer service, certain promotional expenses, system operating costs,
credit card processing fees, the cost of postage for PhotoStamps, image review, printing and fulfillment costs for PhotoStamps,
parcel insurance offering costs, customer misprints and products sold through our Supplies Store and the related costs of
shipping and handling.
Promotional Expense
New PC Postage customers are 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.
Research and Development Costs
Research and development costs are expensed as incurred. These costs primarily consist of compensation for personnel
involved in the development of our services, depreciation of equipment and software and expenditures for consulting services
and third party software.
Sales and Marketing
Sales and marketing expense primarily consist of discretionary spending to acquire new customers and compensation and
related expenses for personnel engaged in marketing and business development activities.
Advertising Costs
We expense the costs of producing advertisements as incurred, and expense the costs of communicating and placing the
advertising in the period in which the advertising space or airtime is used. For the years ended December 31, 2008, 2007, and
2006, advertising and tradeshow costs were $4.3 million, $2.2 million, and $3.2 million, respectively.
Internet Advertising
We recognize Internet advertising expense based on the specifics of the individual agreements. Under partner and affiliate
agreements, third parties refer prospects to our web site and we pay the third parties when the customer completes the customer
registration process, completes the first purchase or in some cases, upon the first successful billing of a customer. We record
these expenses on a monthly basis as prospects are successfully converted to customers.
General and Administrative
General and administrative expense principally consists of compensation and related costs for executive and administrative
personnel, fees for legal and other professional services, depreciation of equipment and software used for general corporate
purposes and amortization of intangible assets.
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STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
Net Income Per Share
Net income per share represents net income attributable to common stockholders divided by the weighted average number of
common shares outstanding during a reported period. The diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock, including stock options, were exercised or converted into common