Stamps.com 2012 Annual Report Download - page 41

Income Taxes
We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic No. 740, Income Taxes (“
ASC
740”),
which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between
the book and tax basis of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it
is more likely than not that some or all of the net deferred tax assets will not be realized. We record a valuation allowance to reduce our gross
deferred tax assets, which are primarily comprised of U.S. Federal and State tax loss carry-
forwards, to the amount that is more likely than not (a
likelihood of more than 50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient
taxable income. We evaluate the appropriateness of our deferred tax assets and related valuation allowance in accordance with ASC 740 based
on all available positive and negative evidence including our recent earnings, expected future taxable income and the federal and state effective
tax rates related to future taxable income.
Based on our evaluation of these factors, we reduced our valuation allowances in 2012 and 2011. The portion credited to the income statement
was approximately $14.4 million and $8.5 million, respectively. As of December 31, 2012, our recorded net deferred tax asset represents
approximately three years of forecasted taxable income as we currently do not believe forecasted taxable income projections beyond three years
can be supported at a more likely than not level. In the event we were to determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which
we make such a determination. Likewise, if we later determine that it is more likely than not that additional deferred tax assets would be realized,
we would reverse the applicable portion of the previously provided valuation allowance.
Property and Equipment
We account for property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-
line
method over the estimated useful life of the asset, generally three to five years for furniture, fixtures and equipment and ten to forty years for
building and building improvements. We have a policy of capitalizing expenditures that materially increase assets’
useful lives and charging
ordinary maintenance and repairs to operations as incurred. When property or equipment is disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts, and any gain or loss is included in operations.
On January 23, 2012, we completed the purchase of our new corporate headquarters in El Segundo, California, for an aggregate purchase price
of $13.4 million of which approximately $7.2 million was allocated to land value and $5.5 million was allocated to building value. The purchase
was accounted for as a business combination. The building is being depreciated on a straight-
line basis over the estimated useful life of 40 years;
the land is an asset that does not get depreciated. As a result of the purchase we also acquired existing leases of building tenants, and $700,000
of the initial purchase price was allocated to lease-in-
place intangible assets and is being amortized over the remaining actual lease terms, which
are as long as 5.5 years.
Recent Accounting Pronouncements
See Note 2 “Summary of Significant Accounting Policies--Recent Accounting Pronouncements”
of our accompanying consolidated financial
statements regarding recent accounting pronouncements and our expectation of their impact on our consolidated financial statements.
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. None of the instruments in our investment portfolio are held for trading purposes. Our cash equivalents
and investments consist of money market, U.S. government obligations, asset-
backed securities and public corporate debt securities with
weighted average maturities of 220 days at December 31, 2012. Our cash equivalents and investments approximated $47 million and had a
weighted average interest rate of 0.8%. Interest rate fluctuations impact the carrying value of the portfolio. The fair value of our portfolio of
marketable securities would not be significantly affected by either a 10 % increase or decrease in the rates of interest due primarily to the short-
term nature of the portfolio. We do not believe that the future market risks related to the above securities will have a material adverse impact on
our financial position, results of operations or liquidity.
Table of Contents
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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