Stamps.com 2010 Annual Report Download - page 79

TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Property and Equipment
Property and equipment is summarized as follows (in thousands):
During 2010, 2009 and 2008, depreciation expense was $881,000, $1.2 million and $1.6 million, respectively. During 2010 we
disposed of non-operating assets totaling approximately $634,000. We did not dispose of any property and equipment in 2009.
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 went live. As a result, we wrote-off $634,000 of fixed assets
in the fourth quarter of 2010. We did not have any similar write-off in 2009.
9. Income Taxes
During 2010, our net income tax benefit consisted primarily of a reduction of a portion of our valuation allowance on our
deferred tax asset as described further below. Our effective income tax rate differs from the statutory income tax rate primarily
as a result of the reduction of a portion of our valuation allowance, our use of federal net operating losses (NOLs) to offset
current federal tax expense and our use of tax credits to offset current state tax expense.
A valuation allowance was originally recorded against our gross deferred tax assets as we determined the realization of these
assets did not meet the more likely than not criteria. During 2008, we determined that a full valuation allowance against our
gross deferred tax assets was not necessary and recorded a partial reversal of the deferred tax valuation allowance of $3.7 million
based on the following discrete events: (1) our 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. During 2009 no discrete event occurred to support an additional release of our valuation allowance.
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) the 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 the available positive and negative evidence,
including our recent earnings trend and expected continued future taxable income. As of December 31, 2010, we continued to
maintain a valuation allowance for the remainder of our gross deferred tax assets.
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. In October 2010, the State of California passed legislation extending this
suspension for tax years 2010 and 2011. As a result of not being able to use our state NOLs, we incurred approximately
$370,000 and $523,000 of additional California state income tax expense during the years ended December 31, 2009 and 2008,
respectively. We did not incur any additional California state income tax as a result of the state NOL suspension during the year
ended December 31, 2010 as we were able to offset 100% of our state income tax liability through the use of our
2010 2009
Furniture and equipment
$
1,789
$
1,679
Computers and software
13,575
13,241
Leasehold improvements
1,768
1,739
17,132
16,659
Less accumulated depreciation and amortization
(15,438
)
(14,557
)
Property and equipment, net
$
1,694
$
2,102
F-16