Stamps.com 2012 Annual Report Download - page 40

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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.
PhotoStamps Retail Boxes
We sell PhotoStamps retail boxes that are redeemable for PhotoStamps on our website. The PhotoStamps retail boxes are sold through various
third party retail partners. Our PhotoStamps retail boxes are not subject to administrative fees on unredeemed boxes and have no expiration
date. PhotoStamps retail box sales are recorded as deferred revenue. Prior to the second quarter of 2011, revenue was recognized only on boxes
that were actually redeemed on our website.
During the second quarter of 2011, we concluded that sufficient company-
specific historical evidence existed to determine the period of time
after which the likelihood of the PhotoStamps retail boxes being redeemed was remote. Based on our analysis of the redemption data, we
estimate that period of time to be 60 months after the sale of our PhotoStamps retail boxes.
Beginning in the second quarter of 2011, we began recognizing breakage revenue related to our PhotoStamps retail boxes utilizing the
redemption recognition method. Under the redemption recognition method, we recognize breakage revenue from unredeemed retail boxes in
proportion to the revenue recognized from the retail boxes that have been redeemed. During the second quarter of 2011, we recognized $2.2
million, which was $0.15 on a per share basis using fully diluted shares as of June 30, 2011 (revenue divided by fully diluted shares outstanding,
exclusive of any current or prior period costs related to the retail programs), of retail box breakage revenue, of which $2.1 million related to a
cumulative catch-
up for previously sold and unredeemed PhotoStamps retail boxes originally recorded as deferred revenue. The retail box
breakage revenue recognized was recorded in PhotoStamps revenue. We continue to recognize retail box breakage revenue from PhotoStamps
retail boxes using the redemption recognition method. During 2012 and 2011 PhotoStamps retail box breakage revenue was approximately
$260,000 and $2.3 million, respectively.
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 subject to various routine 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.
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