Stamps.com 2014 Annual Report Download - page 44

General and Administrative
General and administrative expense principally consists of compensation and related costs for executive and administrative personnel, fees for
legal and other professional services, depreciation of equipment and software used for general corporate purposes and amortization of intangible
assets. General and administrative expense increased 7% to $15.8 million in 2013 from $14.8 million in 2012. The increase is primarily due to
increase in headcount and related expenses and infrastructure investments to support the growth in the business. General and administrative
expense as a percentage of revenue decreased slightly from 13% in 2012 to 12% in 2013. The decrease was primarily attributable to fixed cost
leverage associated with our revenue growth.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest income from cash equivalents, short-term and long-term investments and rental
income from our corporate headquarters in El Segundo, California. Interest and other income, net decreased 11% to $480,000 in 2013 from
$541,000 in 2012. The decrease is primarily due to lower yields on our investment balances including certain investments in our portfolio that
matured and were replaced with lower yield investments.
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.
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