Stamps.com 2013 Annual Report Download - page 33

Provision for Income Taxes
During 2013, our income tax benefit consisted of a reduction of a portion of our valuation allowance on our deferred tax asset (as described
below) and federal and state alternative minimum taxes. 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.
The income tax benefit in 2013 was $9.6 million which was lower than the $13.9 million income tax benefit in 2012. The decrease was
primarily attributable to a lower reduction of a portion of our valuation allowance in 2013 as compared to the reduction of a portion of our
valuation allowance release in 2012.
We evaluated the appropriateness of our deferred tax assets and related valuation allowance in accordance with Accounting Standards
Codification (“ASC”) 740 based on all available positive and negative evidence. 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 believed the other positive and negative evidence we evaluated was consistent (e.g., no material change had 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, we re-evaluated positive and negative evidence relating to our gross deferred tax assets and valuation
allowance noting that there was no additional discrete event subsequent to the first quarter of 2012. During the fourth quarter of 2012, we
updated our three year forecast of projected taxable income. Based on the updated forecast and a change in the California state tax laws, we
recorded another release of a portion of our valuation allowance in the fourth quarter of 2012 totaling approximately $2.5 million.
During the fourth quarter of 2013, we re-evaluated positive and negative evidence relating to our gross deferred tax assets and valuation
allowance noting that there was no discrete event that occurred during 2013 year. During the fourth quarter of 2012, we updated our three year
forecast of projected taxable income. Based on the updated forecast we recorded another release of a portion of our valuation allowance in the
fourth quarter of 2013 totaling approximately $9.7 million.
As of December 31, 2013, we have recorded approximately $40 million of net deferred tax assets on the balance sheet, and we continued to
maintain a valuation allowance for the remainder of our gross deferred tax assets.
During 2013, we recorded current tax provision for corporate alternative minimum federal and state taxes of approximately $158,000. During
2012, we recorded current tax provision for corporate alternative minimum federal and state taxes of approximately $565,000. The decrease in
current tax provision in 2013 compared to 2012 is primarily due to lower taxable income in 2013 as a result of a change in California state tax
laws and additional temporary differences.
Expectations for 2014
We expect the following trends for 2014:
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• We expect fiscal 2014 revenue to be in the range between $125 million and $140 million.
•
We expect growth in 2014 Core PC Postage revenue to be up 5% to 10% compared to 2013. Our ability to grow our Core PC Postage
revenue is dependent on our ability to increase our small business customer acquisition spending on marketing programs resulting in the
addition of new customers and so to the extent we are not able to achieve our target increase in spending, as outlined below, this would
negatively impact our 2014 Core PC Postage revenue growth expectations.