Stamps.com 2010 Annual Report Download - page 63

TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Our core service allows customers to buy and print United States Postal Service (USPS) approved postage using any
personal computer, an ordinary inkjet or laser printer, and an internet connection. Customers use our service to mail and ship a
variety of mail pieces including postcards, envelopes, flats and packages, using a wide range of USPS mail classes, including
First Class Mail®, Priority Mail®, Express Mail®, Media Mail®, Parcel Post®, and others. Our customers include home
businesses, small businesses, enterprises, advance shippers and individuals. In 1999, we became the first ever USPS-licensed
vendor to offer PC Postage® in a software-only business model. In May 2009, we successfully completed the market test of our
PhotoStamps® product, which allows consumers to turn digital photos, designs or images into valid US postage.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Stamps.com Inc. and PhotoStamps Inc. In October 2009, we
formed PhotoStamps Inc., a wholly-owned subsidiary, for the purpose of managing our retail gift card operations. Because 100%
of the voting control is held by us, we have consolidated PhotoStamps Inc. in the accompanying consolidated financial
statements. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates and Risk Management
The preparation of financial statements in conformity with US generally accepted accounting principles requires us to make
estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual
results could differ from those estimates, and such differences may be material to the financial statements. Examples include
estimates of loss contingencies, promotional coupon redemptions, and deferred income taxes and estimates regarding the useful
lives of patents and other amortizable intangibles.
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.
Cash Equivalents and Investments
We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of
purchase to be cash equivalents.
Our cash equivalents and investments consisted of money market funds, U.S. government obligations, asset-backed
securities and public corporate debt securities at December 31, 2010 and 2009. All investments are classified as available for sale
and are recorded at market value using the specific identification method. Realized gains and losses are reflected in interest and
other income, net while unrealized gains and losses are included as a separate component of stockholders' equity.
Accounts Receivable
Our accounts receivable relate to PC Postage services, PhotoStamps sales, branded insurance provided to customers prior to
billing and other receivables. Accounts receivable, net of allowances for uncollectible accounts of approximately $108,000 and
$96,000 as of December 31, 2010 and 2009, respectively, were $4.9 million and $4.4 million as of December 31, 2010 and 2009,
respectively.
We evaluate the collectability of our accounts receivable based on a combination of factors. If we become aware of a
customer’s inability to meet its financial obligations, an allowance is recorded to reduce the net receivable to the amount
reasonably believed to be collectible from the customer. For all other
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