Stamps.com 2014 Annual Report Download - page 47

We provide our customers with the opportunity to purchase parcel insurance directly through our solutions. Insurance revenue represents the
gross amount charged to the customer for purchasing insurance and the related cost represents the amount paid to our insurance brokers. We
recognize revenue on insurance purchases upon the ship date of the insured package.
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 during 2014 and 2013 was not significant to our consolidated financial statements.
Goodwill and Intangible Assets
Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and
liabilities assumed in a business combination. Goodwill is not subject to amortization and is tested annually for impairment, and tested for
impairment more frequently if events and circumstances indicate that the assets might be impaired. In connection with our goodwill impairment
analysis performed annually in our fourth quarter, we first assess qualitative factors to determine whether events or circumstances indicate that
the fair value of our reporting unit is less than their carrying value. If, after assessing the totality of events or circumstances, we determine it is
more likely than not that the fair value of the reporting unit is less than its carrying amount, then we perform the two-step impairment test. The
first step of the two-step impairment analysis is to determine the carrying value of the reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to the reporting unit. We determine the fair value of the reporting unit using the discounted
cash flow approach and a market based approach. To the extent the carrying amount of a reporting unit exceeds its fair value, we would be
required to perform the second step of the impairment analysis, as this is an indication that the reporting unit goodwill may be impaired. In this
step, we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair
value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities
of the reporting unit. The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. To the extent the
implied fair value of goodwill of the reporting unit is less than its carrying amount we would be required to recognize an impairment loss. The
process of evaluating the potential impairment of goodwill is subjective and requires judgment at many points during the test including future
revenue forecasts and discount rates.
Acquired trademarks, patents and other intangibles include both amortizable and non-
amortizable assets and are included in intangible assets, net
in the accompanying consolidated balance sheets. Intangible assets 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 of amortizable
intangible assets is calculated on a straight-line basis over the estimated useful lives of the assets, ranging from approximately 4 to 17 years.
Long lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying amount
of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset
group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset
group exceeds the fair value of the asset group. See Note 3 – “Acquisitions” on our Notes to Consolidated Financial Statements for further
discussion of intangible assets we acquired in connection with our acquisitions of ShipStation and ShipWorks.
42
Table of Contents