Stamps.com 2014 Annual Report Download - page 65

STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2014 and 2013. 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 mailing and shipping services, PhotoStamps sales, and branded insurance provided to customers prior to billing
and other receivables. Accounts receivable are recorded at the invoiced amount, net of allowances for uncollectible accounts of approximately
$414,000 and $283,000 as of December 31, 2014 and 2013.
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 customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, the
current business environment and our historical experience. If the financial condition of our customers deteriorates, resulting in their inability to
make payments, additional provisions are recorded in that period. Accounts receivable are written off against the allowance for uncollectible
accounts when we determine amounts are no longer collectible.
Increases in allowance for doubtful accounts totaled approximately $131,000 and $44,000 for 2014 and 2013, respectively. There were no
material write offs against the allowance for doubtful accounts during 2014 or 2013.
Fair Value of Financial Instruments
Carrying amounts of certain of our financial instruments, including cash, cash equivalents, accounts receivable and accounts payable,
approximate fair value due to their short maturities. The fair values of investments are determined using quoted market prices for those securities
or similar financial instruments.
Certain contingent consideration may be payable by us in connection with our acquisition of ShipStation. The fair value of the contingent
consideration is determined using a series of options that replicate the pay-off structure of the earn-out provision in the ShipStation transaction,
and the value of each of these options was determined using the Black-Scholes-Merton option pricing framework (see Note 3 - “Acquisitions”
for further description).
Concentration of Risk
Our cash, cash equivalents and investments are subject to market risk, primarily interest rate and credit risk. Our investments are managed by a
limited number of outside professional managers within investment guidelines set by us. Such guidelines include security type, credit quality and
maturity and are intended to limit market risk by restricting our investments. From time to time, our investments held with financial institutions
may exceed Federal Deposit Insurance Corporation insurance limits. Interest rate fluctuations and changes in credit ratings impact the carrying
value of our portfolio.
During 2014, 2013 and 2012, we did not recognize revenue from any one customer that represented 10% or more of revenues.
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