Stamps.com 2007 Annual Report Download - page 43

Acquired trademarks, patents and other intangibles are included in intangible assets, net in the accompanying balance sheets
and are carried at cost less accumulated amortization. Cost associated with internally developed intangible assets is typically
expensed as incurred as research and development costs.
Amortization is calculated on a straight-line basis over the estimated useful lives of the assets, ranging from 4 to 17 years.
During 2007, 2006 and 2005, amortization expense including the amortization of trademarks and patents, was approximately
$1.1 million per year.
Impairment of Long-Lived Assets and Intangibles
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Statement of Financial Accounting Standards (SFAS) No. 142 requires that goodwill and intangible assets that have
indefinite useful lives not be amortized but, instead, tested at least annually for impairment while intangible assets that have
finite useful lives continue to be amortized over their respective useful lives.
SFAS No. 142 requires that goodwill and other intangibles be tested for impairment using a two-step process. The first step
is to determine the fair value of the reporting unit, which may be calculated using a
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TABLE OF CONTENTS
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
discounted cash flow methodology, and compare this value to its carrying value. If the fair value exceeds the carrying value, no
further work is required and no impairment loss would be recognized. The second step is an allocation of the fair value of the
reporting unit to all of the reporting unit’s assets and liabilities under a hypothetical purchase price allocation. Based on the
annual evaluations performed by us, there was no impairment during the years ended December 31, 2007, 2006 or 2005.
Deferred Revenue
We sell gift cards for our PhotoStamps product to our customers through our website and selected third parties. Proceeds
from the sale of gift cards are initially recorded as a liability when received. We record the liability for outstanding gift cards in
deferred revenue.
Revenue Recognition
We recognize revenue from product sales or services rendered, as well as from licensing the use of our software and
intellectual property, when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably
assured.
Service revenue is based on monthly convenience fees and is recognized in the period that services are provided. Product
sales, net of return allowances, are recorded when the products are shipped and title passes to customers. Sales of items,
including PhotoStamps, sold to customers are made pursuant to a sales contract that provides for transfer of both title and risk of
loss upon our delivery to the carrier. Return allowances for expected product returns, which reduce product revenue, are
estimated using historical experience. We recognize licensing revenue ratably over the contract period. Commissions from the
advertising or sale of products by a third party vendor to our customer base are recognized when the revenue is earned and
collection is deemed probable.
Customers who purchase postage for use through our NetStamps, shipping label or mailing features, pay face value, and the
funds are transferred directly from the customers to the USPS. We do not recognize revenue for this postage as it is purchased by
our customers directly from the USPS.