Support.com 2005 Annual Report Download - page 38

Provision for income taxes. In 2005, 2004 and 2003, we recorded income tax provisions of $402,000, $310,000 and $496,000,
respectively. These tax provisions are based on estimates of current taxes due in foreign jurisdictions for income and withholding
taxes and nominal income tax amounts in U.S. federal and state jurisdictions, due to our substantial U.S. net operating losses and
credit carryforwards. The 2005 and 2004 tax provisions vary from the expected tax provision at the U.S. federal statutory rate
primarily due to benefits from stock option deductions for which stock based compensation was not previously benefited and the net
reversal of timing differences, offset by nondeductible expenses. The 2003 tax provision varies from the expected tax provision at the
U.S. federal statutory rate primarily due to a benefit from utilization for our U.S. net operating loss carryforwards and a net reversal o
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timing differences offset by nondeductible.
At December 31, 2005, we recorded a full valuation allowance against our deferred tax assets based on the realization criteria
outlined in the applicable accounting literature. Amongst other important factors, we have considered and will continue to consider
our history of earnings and our ability to generate taxable income in the future. Giving appropriate consideration to all the relevant
factors and assuming we perform as we expect in the future, we believe the release of a portion of our valuation allowance will be
appropriate at some point in the future. This would result in an income tax benefit within the statement of income in the period of
adjustment.
Liquidity and Capital Resources
Operating Activities
Net cash generated by/(used in) operating activities was $(844,000) in 2005, $14.5 million in 2004 and $11.7 million in 2003.
Amounts included in net income (loss), which do not require the use of cash, primarily include the depreciation and amortization of
fixed assets, stock compensation and amortization of deferred stock compensation, and amortization of intangible assets amounted to
cash generated by operating activities of $2.2 million in 2005, $2.9 million in 2004 and $1.2 million in 2003. Net cash used in
operating activities during 2005 was a result of net income of $4.4 million, an increase in accounts receivable of $7.8 million, an
increase of $177,000 in other long-term assets, and a decrease in deferred revenues of $1.6 million offset by a decrease in prepaids
and other current assets of $1.1 million, an increase in accounts payable of $686,000, an increase in other accrued liabilities and other
long-term accrued liabilities of $520,000. Net cash generated by operating activities during 2004 was also the result of net income of
$10.2 million, a decrease in accounts receivable of $3.0 million, a decrease in prepaids and other current assets of $291,000 a
decrease in other long-term assets of $195,000, an increase in accrued compensation of $904,000 and an increase in other accrued
liabilities of $726,000 offset by a decrease in deferred revenue of $4.3 million and accounts payable of $83,000. Net cash generated
by operating activities during 2003 was also the result of net income of $9.4 million, an increase in deferred revenue of $6.7 million, a
decrease in other long-term assets of $260,000 and an increase in accounts payable of $264,000 offset by an increase in accounts
receivable of $4.7 million and an increase in prepaids and other current assets of $1.4 million.
Investing Activities
Net cash provided by/(used in) investing activities was $5.5 million in 2005, $(24.2) million in 2004 and $(85.7) million in
2003. Net cash provided by investing activities in 2005 was primarily due to sales and maturities of $98.0 million of short-term
investments largely offset by the purchase of $91.5 million of short- term investments and the purchase of $963,000 of property and
equipment. Net cash used in investing activities in 2004 was primarily due to the purchase of $94.0 million in short-term investments,
payments for a business acquisition of $17.6 million and to a lesser extent the purchase of $791,000 in property and equipment offset
by the sale and maturity of $88.3 million in short-term investments. Net cash used in investing activities in 2003 was primarily due to
the purchase of $116.8 million in short-term investments and to a lesser extent the purchase of $663,000 in property and equipment,
$880,000 of other assets and $309,000 of purchases of technology offset by the sale and maturity of $32.9 million in short-term
investments.
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