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TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.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.
Werecognize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.RevenuefromourPhotoStampsretailboxesisincludedinPhotoStampsrevenue.
PhotoStampsretailboxbreakagerevenuewasnotsignificantduring2015,2014and2013.
Cost of Revenue
Costofservicerevenueprincipallyconsistsofthecostofcustomerservice,certainpromotionalexpenses,systemoperatingcosts,
creditcardprocessingfeesandcustomermisprintsthatdonotqualifyforreimbursementfromtheUSPS.Costofproductrevenue
principallyconsistsofthecostofproductssoldthroughourSuppliesStoresandtherelatedcostsofshippingandhandling.Thecostof
insurancerevenueprincipallyconsistsofparcelinsuranceofferingcoststhroughourthirdpartyinsurancepartners.Costofcustomized
postagerevenueprincipallyconsistsofthefacevalueofpostage,imagereviewcostsandprintingandfulfillmentcosts.
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reasonably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.Weperiodicallyreview
ourhistoricalredemptionratesandadjust,ifnecessary,ourestimatedredemptionratesforfutureperiods.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.During2015,2014and2013promotional
expensewas$3.4million,$3.1millionand$2.4million,respectively.
Research and Development Costs
Researchanddevelopmentexpenseprincipallyconsistofcompensationforpersonnelinvolvedinthedevelopmentofourservices,
depreciationofequipmentandsoftwareandexpendituresforconsultingservicesandthirdpartysoftware.
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,2015,2014and2013,
advertisingandtradeshowcostswere$10.8million,$9.7millionand$10.3million,respectively.
F-11