Stamps.com 2015 Annual Report Download - page 67

TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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,2015and2014.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,postageinvoicing,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$831,000,$414,000and$283,000asofDecember31,2015,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$417,000and$131,000for2015and2014,respectively.There
werenomaterialwriteoffsagainsttheallowancefordoubtfulaccountsduring2015,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.Thefairvalueofourdebtapproximatesbookvalue.
In2014thefairvalueofthecontingentconsiderationwasdeterminedbasedonaprobabilityweightedmethod,whichincorporates
management’sforecastsoffinancialmeasuresandthelikelihoodofthefinancialmeasuretargetsbeingachievedusingaseriesof
optionsthatreplicatethepay-offstructureoftheearn-out,andthevalueofeachoftheseoptionswasdeterminedusingtheBlack-
Scholes-Mertonoptionpricingframework.Increasesordecreasesinthefairvalueofthecontingentconsiderationobligationscanresult
fromchangesintheassumedtimingandamountofrevenueandexpenseestimates,changesintheprobabilityofpaymentscenarios,
changesinstockvalues,aswellaschangesincapitalmarketconditions,whichimpactthediscountrateusedinthefairvaluation.
Significantjudgmentisemployedindeterminingtheappropriatenessoftheseassumptionsasoftheacquisitiondateandforeach
subsequentreportingperiodduring2015.At2015thefairvalueofthecontingentconsiderationwascalculatedbymultiplyingthe
expectedearn-outsharesbyourstockprice.During2015weincurredapproximately$47.4millionofchargesrelatingtoourcontingent
considerationliabilityofwhich$46.1millionwasrecordedincontingentconsiderationchargesand$1.3millionwasrecordedin
marketingandresearchanddevelopmentinoperatingexpenses.Contingentconsiderationliabilitywasapproximately$63.2millionas
ofDecember31,2015.SeeNote3–“Acquisition”furtherdescriptionofthecontingentconsiderationrelatingtoShipStation.
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.
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