Stamps.com 2011 Annual Report Download - page 38

General and Administrative
General and administrative expense increased 13% to $14.6 million in 2010 from $13.0 million in 2009. As a percentage of total revenue,
general and administrative expense increased slightly to 17% in 2010 from 16% in 2009. The increase, both on an absolute basis and as a
percentage of total revenue is primarily due to (1) an increase in legal expenses due to increased activity in our patent infringement litigations
and (2) additional compensation expense of $1.6 million in 2010 related to the special dividend we paid on our common stock as described
further in Note 2 - “Summary of Significant Accounting Policies—Stock Based Compensation”
of our accompanying consolidated financial
statements.
Legal Settlement
Legal settlements were $5.2 million in 2010. This expense was primarily due to our settlement agreement with Kara Technology Incorporated
and Mr. Salim Kara to resolve all outstanding litigation among the parties. We did not incur this expense in 2009.
Non
-Operating Asset Write-Offs
The non-operating asset write-
off was $634,000 in 2010. We incurred $634,000 in capitalized fixed assets related to a project to launch a new
third party billing system. During 2010, we made a decision to abandon this project before it was completed and placed in service. As a result,
we wrote-off the $634,000 fixed assets in the fourth quarter of 2010. We did not have any similar write-off in 2009.
Interest and Other Income, Net
Interest and other income, net decreased 17% to approximately $756,000 in 2010 from $916,000 in 2009. The decrease, both on an absolute
basis and as a percentage of total revenue, is primarily due to lower interest rates and lower investment balances, as we sold certain investments
and used the cash to pay a one-time special dividend of $2.00 per share and repurchase shares of our common stock.
Provision (Benefit) for Income Taxes
In 2010 we had an income tax benefit of approximately $3.9 million compared to an income tax expense of $554,000 in 2009. The income tax
benefit we realized in 2010 was primarily due to the release of a portion of our valuation allowance, which is recorded against our gross deferred
tax asset. During the second quarter of 2010, we recorded an income tax benefit of approximately $4.0 million when we determined that a
release of a portion of our valuation allowance was appropriate as a result of the following discrete events: (1) our attainment of over five
consecutive years of taxable income, (2) the material decline of our Section 382 ownership under the Internal Revenue Code from approximately
34% as of March 31, 2010 to approximately 24% as of June 30, 2010 and (3) the settlement of our outstanding patent infringement litigation
with Kara Technology, which improved our confidence in our short-
term taxable income projection by eliminating the uncertainty of a potential
large negative judgment against us and eliminating the related on-
going third party litigation expenses. In making this determination, we
considered all available positive and negative evidence, including our recent earnings trend and expected continued future taxable income. As of
December 31, 2010, the net deferred tax asset on the balance sheet represented the projected tax benefit we expect to realize over the future two
fiscal years and we continued to maintain a valuation allowance against the remainder of our gross deferred tax asset.
During 2010, the State of California passed legislation that extended the suspension of the use of NOLs to offset current state income tax
expense to the years 2010 and 2011. The legislation also raised the limit on the use of tax credits to offset state income tax expense from 50% in
2009 to 100% for 2010 and 2011. As a result, we were able to utilize our tax credits to offset 100% of our state income tax expense in 2010
compared to 2009 where we utilized our tax credits to offset 50% of our state income tax expense.
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