UNITED STATES PATENT AND TRADEMARK OFFICE NOTES TO FINANCIAL
STATEMENTS
As of and for the years ended September 30, 2005 and 2004
NOTE 1. Summary of Significant Accounting Policies
Reporting Entity
The United States Patent and Trademark Office (USPTO) is an agency of
the United States within the U.S. Department of Commerce. The USPTO administers
the laws relevant to patents and trademarks and advises the Secretary
of Commerce, the President of the United States, and the Administration
on patent, trademark, and copyright protection, and trade-related aspects
of intellectual property.
These financial statements include the USPTO’s two core business
activities – granting patents and registering trademarks –
that promote the use of intellectual property rights as a means of achieving
economic prosperity. These activities give innovators, businesses, and
entrepreneurs the protection and encouragement they need to turn their
creative ideas into tangible products, and also provide protection for
their inventions and trademarks.
These financial statements report the accounts for salaries and expenses
(13X1006), special fund receipts (135127), customer deposits from the
public (13X6542), customer deposits from other federal agencies (13F3885),
Patent Cooperation Treaty collections (13X6538), and Madrid Protocol collections
(13X6554) which are under the control of the USPTO. The federal budget
classifies the USPTO under the Other Advancement of Commerce (376) budget
function. The USPTO does not have custodial responsibility, nor does it
have lending or borrowing authority. The USPTO does not transact business
among its own operating units, and therefore, no intra-entity eliminations
are necessary.
Basis of Presentation
As required by the Chief Financial Officers’ Act of 1990 and 31
U.S.C. 3515 (b), the accompanying financial statements present the financial
position, net cost of operations, budgetary resources, and cash flows
for the USPTO’s core business activities. The books and records
of the USPTO serve as the source of this information.
These financial statements were prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP) and the form and content
for entity financial statements specified by the Office of Management
and Budget (OMB) in Circular A-136, Financial Reporting Requirements,
as well as the accounting policies of the USPTO. Therefore, they may differ
from other financial reports submitted pursuant to OMB directives for
the purpose of monitoring and controlling the use of the USPTO's budgetary
resources. The GAAP for federal entities are the standards prescribed
by the Federal Accounting Standards Advisory Board (FASAB), which is the
official body for setting the accounting standards of the federal government.
There were no changes in GAAP during FY 2005 that affected the financial
statements. Certain prior year balances were reclassified to conform with
current year presentation.
Throughout these financial statements, assets, liabilities, revenues,
and costs have been classified according to the type of entity with which
the transactions are associated. Intra-governmental assets and liabilities
are those from or to other federal entities. Intra-governmental earned
revenues are collections or accruals of revenue from other federal entities
and intra-governmental costs are payments or accruals to other federal
entities.
Basis of Accounting
Transactions are recorded on the accrual basis of accounting, as well
as on a budgetary basis. Accrual accounting allows for revenue to be recognized
when earned and expenses to be recognized when goods or services are received,
without regard to the receipt or payment of cash. Budgetary accounting
allows for compliance with the requirements for and controls over the
use of federal funds.
The accompanying financial statements are presented on the accrual basis
of accounting.
Budgets and Budgetary Accounting
Total budgetary resources are primarily comprised of Congressional authority
to spend current year fee collections, as well as fees collected in a
prior year that were previously temporarily unavailable. Temporarily unavailable
fee collections occur when the Congress does not provide appropriation
authority for the USPTO to spend all fees collected during the given fiscal
year.
In FY 2005 and FY 2004, the USPTO was appropriated up to $1,554,754
thousand and $1,222,460 thousand for fees collected during each fiscal
year, respectively. During FY 2005, the USPTO collected $57,603 thousand
less than the amount appropriated. In accordance with Public Law 108-447,
the USPTO adjusted its spending from fee collections to $1,497,151 thousand.
For FY 2004, the USPTO’s fee collections of $1,320,950 thousand
exceeded the congressional authority, leaving $98,490 thousand that was
not available for spending.
In addition to these annual restrictions, certain USPTO collections
of $233,529 thousand were withheld in accordance with the Omnibus Budget
Reconciliation Act (OBRA) of 1990, and deposited in a special fund receipt
account at the U.S. Department of the Treasury.
The total temporarily unavailable fee collections pursuant to Public Law
at the end of FY 2005 are $750,028 thousand.
The USPTO receives an appropriation of Category A funds from OMB, which
apportions budgetary resources by fiscal quarter. The USPTO does not receive
any Category B funds, or those exempt from apportionment.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Revenue and Other Financing Sources
The USPTO’s fee rates are established by law and, consequently,
in some instances may not represent full cost or market price. Since FY
1993, the USPTO funding has been primarily through the collection of user
fees. Fees that are remitted with initial applications and requests for
other services are recorded as exchange revenue when received, with an
adjustment to defer revenue for services that have not been performed.
All amounts remitted by customers without a request for service are recorded
as liabilities in customer deposit accounts until services are ordered.
The USPTO also receives some financial gifts and gifts-in-kind. All
such transactions are included in the consolidated Gifts and Bequests
Fund financial statements of the Department of Commerce. These gifts are
not of significant value and are not reflected in the USPTO’s financial
statements. Most gifts-in-kind are used for official travel to further
attain the USPTO mission and objectives.
Entity/Non-Entity
Assets that an entity is authorized to use in its operations are termed
entity assets, while assets that are held by an entity and are not available
for the entity’s use are termed non-entity assets. Most of the USPTO’s
assets are entity assets and are available to carry out the mission of
the USPTO, as appropriated by Congress, with the exception of a portion
of the Fund Balance with Treasury, cash, and accounts receivable, as highlighted
in Note 3.
Fund Balance with Treasury
The USPTO deposits revenue in commercial bank accounts maintained by
the Treasury’s Financial Management Service (FMS). All moneys maintained
in these accounts are transferred to the Federal Reserve Bank on the next
business day following the day of deposit. In addition, many customer
deposits are wired directly to the Federal Reserve Bank. All banking activity
is conducted in accordance with the directives issued by the FMS. Treasury
processes all disbursements.
Accounts Receivable
Most of the USPTO’s public accounts receivable balance consists
of electronic funds transfer and credit card payments for fees that are
in transit and have not been credited to the USPTO’s accounts. As
of September 30, 2005 and 2004, respectively, $2,244 thousand and $1,015
thousand are in transit due to the lag time between deposits in commercial
bank accounts and the confirmation received from Treasury.
The remaining portion of accounts receivable are mainly comprised of
amounts due from former employees for the reimbursement of education expenses
and other benefits. This balance in accounts receivable remains as a very
small portion of the USPTO’s assets as the USPTO requires payment
prior to the provision of goods or services during the course of its core
business activities.
The USPTO recorded a $1 thousand allowance for uncollectible amounts
to reduce the gross amount of its employee-related accounts receivable
to its net realizable value as of September 30, 2005 and 2004, respectively.
The allowance is established for receivables that have been transferred
to Treasury. The gross amount of USPTO’s employee-related accounts
receivable as of September 30, 2005 and 2004 was $423 thousand and $289
thousand, respectively.
Advances and Prepayments
On occasion, the USPTO prepays amounts in anticipation of receiving future
benefits. Although a payment has been made, an expense is not recorded
until goods have been received or services have been performed. The USPTO
has prepayments and advances with non-governmental, as well as governmental
vendors.
Total prepayments and advances to non-governmental vendors as of September
30, 2005 and 2004 were $5,631 thousand and $5,162 thousand, respectively.
The largest single prepayment as of September 30, 2005 was $3,261 thousand
for an annual operating lease for mass information technology storage
space. The USPTO advances include funds to personnel for travel costs,
which are expensed after travel has occurred. Travel advances to personnel
as of September 30, 2005 were $33 thousand.
Total prepayments and advances to governmental vendors as of September
30, 2005 and 2004 were $2,729 thousand and $6,370 thousand, respectively.
The governmental prepayments include the USPTO deposit accounts held with
the U.S. Government Printing Office and the U.S. Department of Commerce
to facilitate recurring transactions. Deposit accounts held with the U.S.
Government Printing Office as of September 30, 2005 were $1,902 thousand.
Deposit accounts held with the U.S. Department of Commerce as of September
30, 2005 were $163 thousand.
Cash
Most of the USPTO’s cash balance consists of undeposited checks
for fees that were not processed at the Balance Sheet date due to the
lag time between receipt and initial review. All such undeposited check
amounts are considered to be cash equivalents. As of September 30, 2005
and 2004, the cash balance includes undeposited checks of $8,872 thousand
and $11,869 thousand, respectively. Of these balances, $787 thousand and
$463 thousand were non-entity Patent Cooperation Treaty Account assets
as of September 30, 2005 and 2004, respectively. Cash is also held outside
the Treasury to be used as imprest funds. An imprest fund of $2 thousand
was held as of September 30, 2005 and 2004.
Property, Plant, and Equipment, Net
The USPTO's capitalization policies are summarized below:
USPTO's Property, Plant, and Equipment Capitalization Policies
|
Classes of Property, Plant, and Equipment |
Capitalization Threshold for Individual Purchases |
Capitalization Threshold for Bulk Purchases |
| IT Equipment |
$25 thousand or greater |
$500 thousand or greater |
| Software |
$25 thousand or greater |
Not applicable |
| Software in Progress |
$25 thousand or greater |
Not applicable |
| Furniture |
$25 thousand or greater |
$50 thousand or greater |
| Equipment |
$25 thousand or greater |
$500 thousand or greater |
| Construction in Progress |
$25 thousand or greater |
Not applicable |
| Leasehold Improvements |
$25 thousand or greater |
Not applicable |
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Contractor costs for developing custom internal use software are capitalized
when incurred for the design, coding, and testing of the software. Software
in progress and construction in progress are not amortized until placed
in service.
Property, plant, and equipment acquisitions that do not meet the capitalization
criteria are expensed upon receipt.
Injury Compensation
Claims brought by USPTO employees for on-the-job injuries fall under
the Federal Employees Compensation Act (FECA) administered by the U.S.
Department of Labor (DOL). The DOL bills each agency annually as its claims
are paid, but payment on these bills is deferred approximately two years
to allow for funding through the budget process. As of September 30, 2005,
the USPTO had a $1,328 thousand liability for claims paid on its behalf
during the benefit period October 1, 2003 through September 30, 2005.
As of September 30, 2004, the USPTO had a $1,449 thousand liability for
claims paid on its behalf during the benefit period October 1, 2002 through
September 30, 2004.
Post-employment Compensation
USPTO employees who lose their jobs through no fault of their own may
receive unemployment compensation benefits under the unemployment insurance
program administered by the DOL. The DOL bills each agency quarterly as
its claims are paid. As of September 30, 2005 and 2004, the USPTO liability
was $39 thousand and $73 thousand, respectively, for estimated claims
paid by the DOL on behalf of the USPTO.
Annual, Sick, and Other Leave
Annual leave and compensatory time are accrued as earned, with the accrual
being reduced when leave is taken. An adjustment is made each fiscal quarter
to ensure that the balances in the accrued leave accounts reflect current
pay rates. No portion of this liability has been obligated. To the extent
current or prior year funding is not available to pay for leave earned
but not taken, funding will be obtained from future financing sources.
Sick leave and other types of non-vested leave are expensed as used.
Accrued leave as of September 30, 2005 and 2004 was $39,097 thousand
and $38,935 thousand, respectively.
Employee Retirement Systems and Benefits
USPTO employees participate in either the Civil Service Retirement System
(CSRS) or the Federal Employees Retirement System (FERS). The FERS was
established by the enactment of Public Law 99-335. Pursuant to this law,
the FERS and Social Security automatically cover most employees hired
after December 31, 1983. Employees who had five years of federal civilian
service prior to 1984 and who are rehired after a break in service of
more than one year may elect to join the FERS and Social Security system
or be placed in the CSRS offset retirement system.
The USPTO’s financial statements do not report CSRS or FERS assets,
accumulated plan benefits, or liabilities applicable to its employees.
The reporting of such amounts is the responsibility of the U.S. Office
of Personnel Management (OPM) who administers the plans. While the USPTO
reported no liability for future payments to employees under these programs,
the federal government is liable for future payments to employees through
the various agencies administering these programs. The USPTO financial
statements for FY 2005 recognize an expense, which represents the USPTO’s
share of the costs to the federal government of providing pension, post-retirement
health, and post-retirement life insurance benefits to all eligible USPTO
employees. Prior to FY 2005, the USPTO did not fully fund the pension
and post-retirement health and life insurance benefits of all eligible
USPTO employees. Instead, the USPTO recognized an imputed financing source
and corresponding expense to represent its share of the cost to the federal
government of providing pension and post-retirement health and life insurance
benefits, to all eligible USPTO employees. The USPTO appropriation for
FY 2005 required full funding of the present costs of post-retirement
benefits such as the Federal Employees Health Benefit Program (FEHB) and
the Federal Employees Group Life Insurance Program (FEGLI), and to fully
fund the CSRS and FERS pension liabilities. While ultimate administration
of any post-retirement benefits or retirement system payments will continue
to be administered by various federal government agencies, the USPTO is
responsible for the payment of the present value associated with these
costs calculated using the OPM factors.
For the year ended September 30, 2005, the USPTO made current year contributions
equivalent to approximately 7.0 percent and 11.2 percent of the employee’s
basic pay for those employees covered by CSRS and FERS, respectively,
based on OPM cost factors. For the year ended September 30, 2004, the
USPTO made contributions equivalent to approximately 7.0 percent and 10.7
percent of the employee’s basic pay for those employees covered
by CSRS and FERS, respectively, based on OPM cost factors.
All employees are eligible to contribute to a thrift savings plan. For
those employees participating in the FERS, a thrift savings plan is automatically
established, and the USPTO makes a mandatory contribution to this plan
equal to one percent of the employees’ compensation. In addition,
the USPTO makes matching contributions ranging from one to four percent
of the employees’ compensation for FERS-eligible employees who contribute
to their thrift savings plans. No matching contributions are made to the
thrift savings plans for employees participating in the CSRS. Employees
participating in the FERS are also covered under the Federal Insurance
Contributions Act (FICA), for which the USPTO contributes a matching amount
to the Social Security Administration.
Deferred Revenue
Deferred revenue represents fees that have been received by the USPTO
for requested services that have not been substantially completed. Two
types of deferred revenue are recorded. The first type results from checks
received, with requests for services, which were not yet deposited due
to the lag time between receipt and initial review. The second type of
deferred revenue relates primarily to fees for applications that have
been partially processed. The deferred revenue calculation is a complex
accounting estimate, dependent upon numerous business and administrative
processes, workloads, and inventories.
Environmental Cleanup
The USPTO does not have any liabilities for environmental cleanup.
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