Stamps.com 2010 Annual Report Download - page 66

TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
Intangible assets that have indefinite useful lives are not amortized but, instead, tested at least annually for impairment while
intangible assets that have finite useful lives continue to be amortized over their respective useful lives.
Intangible assets 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 of intangible
assets during the years ended December 31, 2010, 2009 or 2008.
Deferred Revenue
The majority of our deferred revenue relates to PhotoStamps gift cards. 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, 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.
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 PC Postage software, 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 not significant during the
years ended December 31, 2010, 2009 and 2008.
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 PhotoStamps gift cards, which is recognized at the time of redemption, was not significant to our financial
statements during the years ended December 31, 2010, 2009 and 2008. Because we do not yet
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