Stamps.com 2013 Annual Report Download - page 62

STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sales and Marketing
Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel
engaged in sales, marketing, and business development activities. Ongoing marketing programs include the following: traditional advertising,
partnerships, customer referral programs, customer re-marketing efforts, telemarketing, direct sales, direct mail, and online advertising.
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, 2013, 2012 and 2011
, advertising and tradeshow costs were
$10.3 million, $8.7 million and $7.0 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, 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. Under Internet search advertising, we record expenses based on actual “click activity” on our displayed advertisements following
targeted key word searches.
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.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities be
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 be 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 U.S.
Federal and State tax loss carry-forwards, 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.
Under the guidance related to uncertain tax positions, we are required to determine whether it is more likely than not that a tax position will be
sustained upon examination based on the technical merits of the position. A tax position that meets the more likely than not recognition threshold
is measured to determine the amount of liability or benefit to recognize in the financial statements.
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 (commonly and hereafter referred to as “common stock equivalents”), were exercised
or converted into common stock. Diluted net income per share is calculated by dividing net income during a reported period by the sum of the
weighted average number of common shares outstanding plus common stock equivalents for the period.
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