Stamps.com 2010 Annual Report Download - page 44

TABLE OF CONTENTS
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 collectability is reasonably assured.
Our service revenue is primarily 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 a defendant. We record any amounts recovered in these
matters when received. We record liabilities for claims against us when the loss is probable and estimable. Amounts recorded are
based on reviews by outside counsel, in-house counsel and management. Actual results could 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. We account for our promotional expense in
accordance with Accounting Standard Codification (“ASC”) 605-50-25, “Recognition — Vendor’s Accounting for
Consideration Given to a Customer”, by recognizing a liability for promotional expense based on estimated amounts that will be
claimed by customers unless the liability for promotional expense cannot be reasonable and reliably estimated. 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.
Income Taxes
We account for income taxes in accordance with FASB ASC Topic No. 740, Income Taxes (“ASC 740”), which requires
that deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the
book and tax basis of recorded assets and liabilities. ASC 740 also requires that deferred tax assets are reduced by a valuation
allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. We record a valuation
allowance to reduce our gross deferred tax assets, which are primarily comprised of US Federal and State tax loss carryforwards,
to the amount that is more likely than not (a likelihood of more than 50 percent) to be realized. In order for us to realize our
deferred tax assets, we must be able to generate sufficient taxable income. We evaluate the appropriateness of our deferred tax
assets and related valuation allowance in accordance with ASC 740 based on all available positive and negative evidence which
includes our forecasted future taxable income which is a critical accounting estimate by management.
Based on our evaluation of these factors, we reduced our valuation allowances in 2010 and 2008. The portion credited to the
income statement was approximately $4.0 million and $3.7 million, respectively. As of
36