Stamps.com 2004 Annual Report Download - page 50

F-15
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
8. Income Taxes
The provision for income taxes consists solely of minimum state taxes. The Company’ s effective tax rate
differs from the statutory federal income tax rate primarily as a result of the establishment of a valuation allowance
for the future benefits to be received from the deferred tax assets including net operating loss carryforwards and
research tax credit carryforwards. The tax effect of temporary differences that give rise to a significant portion of the
deferred tax assets and liabilities at December 31, 2004 and 2003 are presented below (in thousands):
2004 2003
Deferred tax assets (liabilities):
Net operating loss carryforward ......................................................................... $ 109,588 $ 105,710
Research credits.................................................................................................. 633 633
Other credits ....................................................................................................... 114 114
Depreciation ....................................................................................................... (835) 86
Capitalized start-up costs.................................................................................... (260) 445
Accruals.............................................................................................................. 1,322 1,253
Total deferred tax assets............................................................................... 110,562 108,241
Valuation allowance ............................................................................................... (110,562) (108,241)
Net deferred tax assets ................................................................................... $
—
$
—
Because the Company is uncertain as to when and if it may realize its deferred tax assets, the Company has
placed a valuation allowance against its otherwise recognizable deferred tax assets.
The Company has a net operating loss carryforward of approximately $284.2 million and $222.1 million
for federal and state income tax purposes at December 31, 2004, respectively, and approximately $274.4 million and
$212.7 million for federal and state income tax purposes at December 31, 2003, respectively, which can be carried
forward to offset future taxable income. At December 31, 2004 and 2003, the Company had available a tax credit
carryforward of approximately $747,000, which can be carried forward to offset future taxable liabilities. The
Company’ s federal net operating losses will begin to expire in 2018; state net operating losses will begin to expire in
2006. The federal credits begin to expire in 2018 and the state credits will begin to expire in 2006. The Federal Tax
Reform Act of 1986 and similar state tax laws contain provisions which may limit the net operating losses
carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in
ownership interests. The provision for income taxes is comprised of (in thousands):
2004 2003 2002
Current
Federal ................................................................................................... $
—
$
—
$
—
State ....................................................................................................... 1 1 2
1 1 2
Deferred.................................................................................................
—
—
—
Provision for income taxes .................................................................... $ 1 $ 1 $ 2
Differences between the provision for income taxes and income taxes at the statutory federal income tax
rate are as follows (in thousands):
2004 2003 2002
Income tax at statutory federal rate........................................................ $ (1,609) $ (3,171) $ (2,328)
State income taxes, net of federal benefit.............................................. (276) (544) (397)
Effect of tax credits................................................................................
—
—
—
Effect of permanent differences............................................................. 3 228 199
Other......................................................................................................
—
(1,139)
—
Change in valuation allowance.............................................................. 1,883 4,627 2,528
$ 1 $ 1 $ 2