Stamps.com 2015 Annual Report Download - page 50

TABLE OF CONTENTS
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onOctober1st,weperformthe
firststepofthetwo-stepimpairmentanalysis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.Areportingunitistheoperatingsegmentorabusinessthat
isonelevelbelowthatoperatingsegment.Reportingunitsareaggregatedasasinglereportingunitiftheyhavesimilareconomic
characteristics.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,ShipWorksandEndicia.
Contingent Consideration
UnderFinancialAccountingStandardsBoard(“FASB”)ASCTopicNo.805BusinessCombination(“ASC805”),wearerequired
tore-measurethefairvalueofthecontingentconsiderationrelatingtoouracquisitionofShipStationateachreportingperiod.Thefair
valueofthecontingentconsiderationwasapproximately$63millionand$25millionasofDecember31,2015and2014,respectively.
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.SeeNote3–“Acquisitions”onourNotestoConsolidatedFinancialStatementsforfurther
discussionofourcontingentconsiderationrelatingtoShipStation.
Contingencies and Litigation
Wearesubjecttovariousroutinelitigationmattersasaclaimantandadefendant.Werecordanyamountsrecoveredinthese
matterswhenreceived.Weestablishlossprovisionsforclaimsagainstuswhenthelossisbothprobableandcanbereasonably
estimated.Ifeitherorbothofthecriteriaarenotmet,weassesswhetherthereisatleastareasonablepossibilitythataloss,or
additionallosses,mayhavebeenincurred.Ifthereisa
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