Balance Sheet Components

Intellectual Property Prepaid Royalties

Intellectual property prepaid royalties are included in prepaid expenses and other current assets and other assets. Total amortization for these license agreements in 2017, 2016 and 2015 were $1.2 million, $1.2 million and $1.3 million, respectively. As of December 31, 2017, the Company had a balance of $5.6 million in unamortized prepaid royalties. Amortization of these licenses is estimated as follows (in thousands):



Year Ending December 31:
2018	$	1,083
2019	675
2020	502
2021	502
2022	493
Thereafter	2,365
	$	5,620

Prepaid Expenses and Other Current Assets



	December 31,
	2017		2016
	(in thousands)
Prepaid service contracts – current portion	$	12,861	$	11,114
Manufacturing partners receivable	6,322		11,739
Prepaid postage	3,274		4,754
Other prepaid expenses and current assets	18,926		20,477
	$	41,383	$	48,084

Property and Equipment, Net



	December 31,
	2017			2016
	(in thousands)
Manufacturing equipment	$	192,494		$	182,484
Computer equipment and software	188,593			177,525
Capitalized software and website development costs	134,585			134,427
Buildings under build-to-suit leases	56,468			56,468
Leasehold improvements	22,145			22,007
Rental equipment	19,208			18,786
Furniture and fixtures	8,255			11,057
	621,748			602,754
Less: Accumulated depreciation and amortization	(354,888		)	(318,644		)
Property and equipment, net	$	266,860		$	284,110

Building value of $56.5 million under build-to-suit leases represents the estimated fair market value of buildings under build-to-suit leases of which the Company is the "deemed owner" for accounting purposes only. See Note 7 - Commitments and Contingencies for further discussion of the Company's build-to-suit leases.

Included within Manufacturing equipment is approximately $89.9 million of capital lease obligations for various pieces of manufacturing facility equipment in 2017 and 2016. Accumulated depreciation of assets under capital lease totaled $32.4 million at December 31, 2017 compared to $25.1 million at December 31, 2016.

Rental equipment includes camera lenses, camera bodies, video equipment and other camera peripherals which are rented through the BorrowLenses website.

Depreciation and amortization expense totaled $88.9 million, $93.5 million, and $86.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Included in property and equipment is approximately $15.8 million and $14.3 million of assets in construction as of December 31, 2017 and 2016, respectively, the majority of which relates to internal-use software.

Total capitalized software and website development costs, net of accumulated amortization totaled $57.4 million and $50.8 million at December 31, 2017 and 2016, respectively. Amortization of capitalized costs totaled approximately $26.8 million, $22.0 million and $18.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.

During the second quarter of 2017, the Company took advantage of an opportunity to complete the upgrade of the majority of its color printer fleet. The benefits of the upgrade include improved quality, increased throughput and automation, and lower consumable costs. There are three pieces of this transaction as follows:

•Purchase of leased equipment from an existing vendor for $21.6 million;

•Sale of the purchased leased equipment to HP, Inc. ("HP") for $20.5 million; and

•Lease of new equipment from HP.

In the purchase of the existing leased equipment, the difference between the payment of $21.6 million and the fair value of the asset resulted in an $8.1 million capital lease termination charge (a separate line item in the consolidated statement of operations). The purchased equipment assets were recorded on the balance sheet at fair value of $12.9 million. The subsequent sale of the equipment to HP for $20.5 million resulted in the removal of the equipment assets and a capital lease incentive of $7.9 million to be amortized over the new lease term. Lastly, the Company leased new equipment from HP which upgraded most of its remaining color fleet to HP's high-end printers.

Intangible Assets

Intangible assets are comprised of the following:



	Weighted Average Useful Life	December 31,
	Weighted Average Useful Life	2017			2016
		(in thousands)
Purchased technology	10 years	$	104,869		$	104,869
Less: accumulated amortization		(76,585		)	(69,768		)
		28,284			35,101

Customer relationships	5 years	75,146			75,146
Less: accumulated amortization		(73,759		)	(67,311		)
		1,387			7,835

Licenses and other	3 years	7,202			7,202
Less: accumulated amortization		(7,202		)	(6,718		)
		—			484

Total		$	29,671		$	43,420

Purchased technology is amortized over a period ranging from one to sixteen years. Customer relationships are amortized over a period ranging from one to seven years. Licenses and other is amortized over a period ranging from two to five years.

Intangible asset amortization expense for the years ended December 31, 2017, 2016 and 2015 was $13.7 million, $18.9 million and $25.8 million, respectively. Amortization of existing intangible assets is estimated to be as follows (in thousands):



Year Ending December 31:
2018	$	4,829
2019	3,408
2020	3,407
2021	3,407
2022	3,407
Thereafter	11,213
	$	29,671

Goodwill

The Company conducted its annual impairment assessment (Step One Analysis) test during the fourth quarter of 2017 in accordance with authoritative guidance. The Company determined that the estimated fair values of all of the reporting units substantially exceeded their carrying values and that they were not impaired.

As of December 31, 2017, the Company's total goodwill balance is $409.0 million, with $372.1 million related to the Consumer segment and $36.9 million related to the SBS segment. There were no changes to the Company's goodwill balances in 2017 and 2016.

Accrued Liabilities



	December 31,
	2017		2016
	(in thousands)
Accrued production costs	$	37,552	$	38,755
Accrued compensation	31,331		17,066
Accrued marketing expenses	22,874		23,839
Accrued income, sales and other taxes	21,745		19,846
Capital lease obligations, current portion	16,859		16,092
Accrued other	28,887		23,271
	$	159,248	$	138,869

Other Liabilities



	December 31,
	2017		2016
	(in thousands)
Financing obligations	$	53,682	$	55,355
Capital lease obligations, non-current portion	48,620		50,213
Deferred revenue, non-current portion	5,618		7,303
Deferred tax liability	1,012		20,446
Other liabilities	10,263		3,718
	$	119,195	$	137,035

Financing obligations relate to the Company's build-to-suit leases as further discussed in Note 7 - Commitments and Contingencies.