Stamps.com 2005 Annual Report Download - page 49

STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
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.
The Company adopted SFAS No. 142 beginning with the first quarter of fiscal 2002. 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 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 the Company, there was no impairment during the years ended December 31, 2005,
2004 or 2003.
Revenue Recognition
The Company recognizes revenue from product sales or services rendered 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. Service revenue 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. Retail 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, which reduce product revenue by our best estimate of expected product returns, are estimated using historical experience.
Licensing revenue is recognized 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 the Company’s NetStamps, shipping label or traditional postage features, pay face value,
and the funds are transferred directly from the customers to the US Postal Service. No revenue is recognized for this postage as it is purchased
by our customers directly from the US Postal Service.
PhotoStamps revenue includes the price of postage and is made pursuant to a sales contract that provides for transfer of both title and risk
of loss upon our delivery to the carrier.
On a limited basis, we allow third parties to offer products and promotions to the Stamps.com customer base. These arrangements
generally provide payment in the form of a flat fee or revenue sharing arrangements where we receive payment upon customers accessing third
party products and services. Total revenue from such advertising arrangements is currently immaterial.
We provide our customers the opportunity to purchase parcel insurance directly through the Stamps.com software. The insurance
information is communicated directly to Parcel Insurance Plan for processing. The insurance is underwritten by Fireman’s Fund. We recognize
revenue from our insurance offerings based on the shipment date of the item insured.
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