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STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and equipment is summarized as follows (in thousands):
During 2012, 2011 and 2010, depreciation expense was approximately $1.4 million, $838,000 and $881,000, respectively. Prior to 2010, 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 2012 or 2011.
During 2012, our net income tax benefit consisted of federal and state minimum taxes and a reduction of a portion of our valuation allowance on
our deferred tax asset (as described 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. We evaluated the appropriateness of our deferred tax assets and related valuation allowance in
accordance with ASC 740 based on all available positive and negative evidence. A valuation allowance is recorded against a portion of our
gross deferred tax assets as we have determined the realization of these assets does not meet the more likely than not criteria.
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. During the fourth quarter of 2011, we released
a portion of our valuation allowance totaling approximately $8.5 million as a result of an increase in our projected taxable income.
On March 6, 2012, we entered into a binding agreement with PSI Systems, Inc. (PSI) to resolve all outstanding patent litigation among the
parties. Because the PSI litigation settlement occurred during the first quarter of 2012, we eliminated what had previously been negative
evidence at that time. The litigation settlement then became positive evidence because (1) it eliminated the hard-to-
predict fluctuations in
litigation expenditures, which we expected to be material in future forecasts, (2) it eliminated the potential for a material negative financial
judgment against us and (3) it eliminated the possibility of an injunction against us. We believe the other positive and negative evidence we
evaluated is consistent (e.g., no material change has occurred) relative to our evaluation of this evidence in prior periods. Based on this discrete
event, we extended our forecast of projected taxable income from two years to three years for the portion of our deferred tax asset for which it
was more likely than not that a tax benefit would be realized under ASC 740 as of March 31, 2012. As a result, we released a portion of our
valuation allowance totaling $11.9 million during the first quarter of 2012. During the fourth quarter of 2012, based on our updated forecast of
three year projected taxable income and a change in the California state tax laws, we recorded another release of a portion of our valuation
allowance totaling approximately $2.5 million.
Table of Contents
8.
Property and Equipment
2012
2011
Land
$
7,156
$
—
Building
4,886
—
Building improvements
13,569
—
Furniture and equipment
1,362
2,178
Computers and software
8,311
14,494
Leasehold improvements
—
1,769
35,284
18,441
Less accumulated depreciation and amortization
(6,653
)
(16,276
)
Property and equipment, net
$
28,631
$
2,165
9.
Income Taxes
F
-
20