Stamps.com 2010 Annual Report Download - page 42

TABLE OF CONTENTS
decrease in legal expenses, as we incurred the cost of going to trial for the Kara Technologies lawsuit during 2008. Additionally,
we incurred a one-time litigation charge of $710,000 during the second quarter of 2008 relating to a lawsuit by Sterling Reality
Organization Co. stemming from our iShip business, which we divested in 2001.
Interest and Other Income, Net
Interest and other income, net decreased 69% to approximately $916,000 in 2009 from $2.9 million in 2008. 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 repurchase shares of our common stock.
Provision (Benefit) for Income Taxes
In 2009 we had an income tax expense of approximately $554,000 compared to an income tax benefit of $2.8 million in
2008. During 2009 our income tax expense consisted of alternative minimum federal tax and state income tax. During 2008 our
income tax benefit consists of alternative minimum federal tax and state income tax netted against a tax benefit. The income tax
benefit we realized in 2008 was primarily due to the release of a portion of our valuation allowance which is recorded against
our deferred tax asset. During 2008, we recorded an income tax benefit of approximately $3.7 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) the attainment of
three consecutive years of taxable income and (2) indication from the USPS that the market test for our PhotoStamps business,
which constituted 21% of total revenue in 2007, would be extended for another year into 2009. In making this determination, we
considered the available positive and negative evidence, including our recent earnings trend and expected continued future
taxable income. As of December 31, 2008, the net deferred tax asset on the balance sheet represented the projected tax benefit
we expect to realize over the future one fiscal year and we continued to maintain a valuation allowance against the remainder of
our gross deferred tax asset. During 2009 there was no discrete event to support an additional valuation release of our deferred
tax asset and thus there was no income tax benefit in that year.
In September 2008, the State of California passed legislation temporarily suspending the use of NOLs to offset current state
income tax expense for the tax years 2008 and 2009. As a result of not being able to use our state NOLs, we incurred additional
California state income tax expense during the years ended December 31, 2009 and 2008. However; we were able to offset 50%
of our state income tax expense through use of our tax credits in both of these years.
Liquidity and Capital Resources
As of December 31, 2010 and 2009, we had $35 million and $72 million in cash, restricted cash and short-term and long-
term investments, respectively. We invest available funds in short-term and long-term money market funds, commercial paper,
asset-backed securities, corporate notes and bonds and municipal securities and do not engage in hedging or speculative
activities.
In November 2003, we entered into a facility lease agreement commencing in March 2004 for our corporate headquarters
with aggregate lease payments of $4.0 million through March 2010. In December 2009, we amended our lease agreement
extending the term for 26 months commencing in April 2010 through May 2012. In addition to extending our lease term, we also
added lease space of approximately 5,000 square feet. The total remaining aggregate lease payments as of December 31, 2010
under the original and amended lease agreement are $1.4 million.
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