Stamps.com 2004 Annual Report Download - page 26

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a charge of approximately $1.6 million relating to cash and stock distributed to employees to compensate them for
the loss in value of employee stock options held by general and administrative personnel as a result of our return of
capital cash dividend of $1.75 per share in February 2004. Without the charge, general and administrative expenses
would have decreased from $14.5 million in fiscal 2003 to $11.4 million in fiscal 2004, a decrease of 21%. This
decrease is primarily due to a reduction in legal fees expense. The decrease in general and administrative expense as
a percentage of total revenue is primarily due to a reduction in legal fee expense and growth in revenues. We
currently expect general and administrative expenses to remain in the range of $11 million to $11.5 million in fiscal
2005.
Other Income, Net. Other income, net consists of interest income from cash equivalents and short-term and
long-term investments, other loss from the disposal of capitalized assets that are no longer in use, and income
relating to a legal settlement in the amount of $1.4 million. Other income, net decreased from $3.3 million in fiscal
2003 to $2.3 million in fiscal 2004, a decrease of 32%. As a percentage of total revenue, other income, net decreased
10 percentage points from 16% in fiscal 2003 to 6% in fiscal 2004. The decrease is mainly attributable to lower
interest income of $1.9 million in 2004 as compared to $3.3 million in 2003 due to lower invested balances in cash
and equivalents and short-term and long-term investments as a result of our return of capital cash dividend of
approximately $78 million in February 2004. In addition, we recognized expenses of approximately $987,000
related to the write-off of certain capitalized assets that are no longer in use and recognized income relating to a
legal settlement in the amount of $1.4 million.
Years Ended December 31, 2003 and 2002
The following table sets forth our results of operation as a percentage of total revenue for the periods
indicated:
Twelve months ended December 31,
2004 2003
Total Revenues
Service ................................................................................................ 83% 91%
Product and other................................................................................ 17% 9%
Total revenues................................................................................ 100% 100%
Cost of revenues
Service ................................................................................................ 34% 31%
Product and other................................................................................ 5% 2%
Total cost of revenues .................................................................... 39% 33%
Gross profit .................................................................................... 61% 67%
Operating expenses:
Sales and marketing............................................................................ 30% 15%
Research and development ................................................................. 23% 29%
General and administrative ................................................................. 68% 95%
Total operating expenses................................................................ 121% 139%
Loss from operations ............................................................................... (60)% (72)%
Other income, net................................................................................ 16% 30%
Net loss .................................................................................................... (44)% (42)%
Revenue. 2002 and 2003 revenue was derived primarily from two sources: (1) service fees charged to
customers for the ability to buy and print postage and (2) product sales and other revenue, consisting of online store
revenue from the direct sale of consumables and products and the related charges for shipping and handling,
advertising revenue from controlled access advertising to our existing customer base and insurance revenue from our
parcel insurance offering. Revenue increased from $16.4 million to $21.2 million, or 29.8%, for the years ended
December 31, 2002 and 2003, respectively.
Service fee revenue increased from $14.9 million to $17.6 million, or 18.1%, for the years ended
December 31, 2002 and 2003, respectively. As a percentage of total revenue, service fee revenue decreased 8
percentage points from 91% in fiscal 2002 to 83% in fiscal 2003 due to the growth of our product sales and other
revenue. The increase in service fee revenue was primarily due to the increase in customer acquisition, which in turn
was largely due to an increase in our marketing spending and efficiency. Furthermore, in 2003 we acquired a higher