Stamps.com 2010 Annual Report Download - page 37

TABLE OF CONTENTS
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 primarily consists of interest income from cash equivalents, short-term and long-term
investments and other income currently immaterial to our financial statements. 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 increased the limitation 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.
Expectations for 2011
We expect the following trends for 2011 compared with 2010:
• We expect to continue to increase customer acquisition spending on our PC Postage non-enhanced promotion channels
by 5 – 10% in 2011 compared to 2010. We will continue to monitor our customer metrics and the state of the economy
throughout the year and adjust our level of spending accordingly.
• We expect to see upper single digit revenue growth in PC Postage revenue excluding the enhanced promotion channel
for 2011 compared to 2010. We expect this growth to be driven by both increases in the number of paying customers and
increases in average revenue per customer.
• We expect to continue to reduce PC Postage marketing spending in the enhanced promotion channel and as a result
expect that PC Postage revenue for customers acquired through this channel will continue to decrease in 2011 compared
to 2010 and consistent with the declining trends we saw in 2010.
• While we did see an improvement in our fourth quarter PC Postage customer metrics, we believe macro-economic
factors are still negatively impacting PC Postage customer metrics in the form of higher cost per acquired small business
customer and higher churn rates relative to pre-recessionary levels. We believe economic uncertainty has reduced
customers' willingness to take on additional new services and that small business failure rates negatively impact our
churn rates. Thus, the state of the economy in general and in particular as it impacts small businesses has a material
impact on
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