Stamps.com 2003 Annual Report Download

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FORM 10-K
STAMPS.COM INC
(Annual Report)
Filed 3/1/2004 For Period Ending 12/31/2003
Address 12959 CORAL TREE PLACE
LOS ANGELES, California 90066-7020
Telephone 310-482-5800
CIK 0001082923
Industry Retail (Catalog & Mail Order)
Sector Services
Fiscal Year 12/31

Table of contents

  • Page 1
    STAMPS.COM INC FORM 10-K (Annual Report) Filed 3/1/2004 For Period Ending 12/31/2003 Address Telephone CIK Industry Sector Fiscal Year 12959 CORAL TREE PLACE LOS ANGELES, California 90066-7020 310-482-5800 0001082923 Retail (Catalog & Mail Order) Services 12/31

  • Page 2

  • Page 3
    ... Monica, California 90405 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (310) 581-7200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of...

  • Page 4
    Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders currently expected to be held on April 23, 2004, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Form 10-K.

  • Page 5
    ... ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K SIGNATURES EXHIBIT 23.1 EXHIBIT 23.2 EXHIBIT 24.1 EXHIBIT 24.2 EXHIBIT 24.3 EXHIBIT 24.4 EXHIBIT 31.1 EXHIBIT...

  • Page 6
    ... of Contents STAMPS.COM INC. FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2003 TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK...

  • Page 7
    ... First-Class Mail®, Priority Mail®, Express Mail®, Parcel Post™, Media Mail™ and Bound Printed Matter. Customers can also add USPS Special Services such as Delivery Confirmation™, Signature Confirmation™, Registered Mail, Certified Mail, Insured Mail, Return Receipt, Collect on Delivery...

  • Page 8
    ... on mail class, mail form, weight and destination address. Second, customers can reduce the cost of returned or undeliverable mail with our address correction and verification feature. Third, customers using our service to ship packages with electronic Delivery or Signature confirmation save...

  • Page 9
    ... can track delivery status of their packages with a single click from our software. Third, customers can add electronic Delivery or Signature confirmation without any physical forms at a discounted rate. Fourth, customers can use Stamps.com insurance to insure packages without having to go the post...

  • Page 10
    ...per month power plan customers. Second, we plan to optimize our pricing and promotional offers for new customers. Third, we plan to continue to invest in, and optimize the performance of, our current marketing channels. Fourth, we plan to add new features to our software. Finally, we plan to add new...

  • Page 11
    ... purchases using secure technology that meets US Postal Service security requirements. Our service currently uses a Windows-based client application, which supports a variety of label and envelope options and a wide range of printers. In addition, our application employs an internally-developed user...

  • Page 12
    ... post office or the need to complete any forms. Further, customers on select plans currently receive a 10% discount over US Postal Service insurance rates. Other shipping improvements include the ability to send shipment notifications emails with a tracking link, the ability to print shipping labels...

  • Page 13
    ... Financial Officer. In January of 2004, James Bortnak was appointed Vice President, Sales and Marketing. Employees As of December 31, 2003 we had 108 employees not including temporary or contract workers. Our employees work in various departments including customer support, research and development...

  • Page 14
    ... costs of our marketing programs to establish and promote the Stamps.com brands; (b) the demand for our service; (c) our ability to develop and maintain strategic distribution relationships; (d) the number, timing and significance of new products or services introduced by us and by our competitors...

  • Page 15
    ... and use of our services, we must develop and execute cost-effective marketing campaigns and sales programs. We currently rely on a combination of marketing techniques to attract new customers including direct mail, online marketing and business partnerships. If new legal restrictions limit our...

  • Page 16
    ... flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also vulnerable to computer viruses, physical, electrical or electronic break...

  • Page 17
    ...other issues. Our business would suffer dramatically if we are unable to adapt our services to any new requirements or specifications or if the US Postal Service were to discontinue PC Postage as an approved postage method. Alternatively, the US Postal Service could introduce competitive programs or...

  • Page 18
    ... a network or Web browsers could also promote our competitors or charge us a substantial fee for inclusion. In addition, changes in postal regulations could adversely affect our service and significantly impact our competitive position. We may be unable to compete successfully against current and...

  • Page 19
    ... original purchase price. In the past, securities class action litigation often has been instituted against companies following periods of volatility in the market price of their securities. This type of litigation, if directed at us, could result in substantial costs and a diversion of management...

  • Page 20
    ... 16, 2003 the Special Master sent reports and associated proposed orders to the court containing recommendations of the Special Master regarding claim construction and motions that had been brought by the parties. On December 4, 2002, Pitney Bowes filed a further patent infringement lawsuit against...

  • Page 21
    ... compensation, including prejudgment and post-judgment interest, costs and expenses (including attorneys' fees), and rescissionary damages. In April 2002, plaintiffs filed a consolidated amended class action complaint against us and certain of our current and former board members and/or officers...

  • Page 22
    ...'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information Our common stock is traded on The Nasdaq National Market under the symbol "STMP". The following table sets forth the range of high and low closing sales prices reported on The Nasdaq National Market for our common stock for the...

  • Page 23
    ...December 31, 2003 2002 2001 (in thousands, except per share data) 2000 1999 Statement of Operations Data: Revenues Cost of sales Research and development Sales and marketing General and administrative Impairment of goodwill Provision for loss on loan with former officer Restructuring charges 2 Loss...

  • Page 24
    ... risk of misprinted postage. Using our new Plain Paper Shipping Label allows customers to receive free electronic delivery confirmation with Priority Mail. Prior to this technology, the USPS required separate confirmation labels that added an additional step to the process, and an additional cost of...

  • Page 25
    ... over USPS insurance rates. Other shipping improvements include the ability to send shipment notification emails with a tracking link, the ability to print shipping labels for Express Mail® and Bound Printed Matter, and support for additional USPS services such as Collect on Delivery (COD). Finally...

  • Page 26
    ...specialty NetStamps labels, shipping labels, Internet Postage labels, dedicated postage printers, and scales, among other items available to our customers. Cost of Revenue. Cost of revenue principally consists of the cost of customer service, promotional expenses, system operating costs, credit card...

  • Page 27
    ... direct mail and online advertising channels. General and Administrative. General and administrative expenses principally consist of compensation and related costs for executive and administrative personnel, fees for legal and other professional services, depreciation of equipment and software used...

  • Page 28
    ... return on investment. General and Administrative. General and administrative expenses principally consist 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...

  • Page 29
    ...termination fee. In November 2003, we entered into a facility lease agreement commencing on March 2004 for our new corporate headquarters with aggregate lease payments of approximately $4.0 million through February 2009. The following table is a schedule of our contractual obligations and commercial...

  • Page 30
    ..., this Statement amends the disclosure requirement of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted this statement...

  • Page 31
    Table of Contents competitive conditions change. If events were to occur that would cause our assumptions to change, the amounts recorded as amortization would be adjusted. Contingencies and Litigation . We are involved in various litigation matters as a claimant and as defendant and we record any ...

  • Page 32
    Table of Contents management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations. During the quarter ended December 31, 2003, there were no changes in our internal control over financial reporting that...

  • Page 33
    ... Related Transactions", appearing in our proxy statement for our 2004 annual meeting of stockholders. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES We incorporate by reference the information under the heading "Principal Accounting Fees and Services", appearing in our proxy statement for our 2004...

  • Page 34
    ... 20, 1998.(1) 1998 Stock Plan and Forms of Notice of Grant and Stock Option Agreement.(1) 1999 Stock Incentive Plan.(1) 1999 Employee Stock Purchase Plan.(1) Form of Indemnification Agreement between the Company and its directors and officers.(1) Lease Agreement, dated August 27, 1998, between...

  • Page 35
    ... Separation Letter Agreement by and between the Company and John M. Payne.* Asset Purchase Agreement dated April 27, 2001 by and between the Company and E-Stamp Corporation.(9) Amendment to the Online Store Outsourcing Agreement dated January 31, 2002 by and between the Company and Office Depot, Inc...

  • Page 36
    ... of Non-Employee Director-Automatic Stock Option (Annual).(3) Form of Enrollment/Change Form for Employee Stock Purchase Plan.(3) Form of Stock Purchase Agreement for Employee Stock Purchase Plan.(3) iShip.com, Inc. Amended and Restated 1997 Stock Plan.(4) Form of Option Assumption Agreement (iShip...

  • Page 37
    ... from this exhibit and filed separately with the Securities and Exchange Commission. (b) Reports on Form 8-K: On December 22, 2003, Stamps.com filed a report on Form 8-K, which reported under Item 5 that Stamps.com reached a settlement with Pitney Bowes in all of their respective litigation. 31

  • Page 38
    ... in their report dated February 7, 2002. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material...

  • Page 39
    ... by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Stamps.com Inc.: We have audited the accompanying consolidated balance sheets of Stamps.com Inc. (a Delaware corporation) and...

  • Page 40
    ... CONSOLIDATED BALANCE SHEETS December 31, 2003 (in thousands) 2002 Assets Current assets: Cash and cash equivalents Restricted cash Short-term investments Trade accounts receivable Other accounts receivable Other current assets Total current assets Property and equipment, net Trademarks and patents...

  • Page 41
    ... 31, 2003 2002 (in thousands, except per share data) 2001 Revenues: Service Product sales and other revenue Total revenue Cost of revenues: Service Product sales and other revenue Total cost of revenues Gross profit Expenses: Research and development Sales and marketing General and administrative...

  • Page 42
    ...Net loss Unrealized gain/(loss) on investments Comprehensive income (loss) Exercise of stock options Shares purchased under the ESPP Amortization of deferred compensation Repurchase of common stock Balance at December 31, 2003 $49,654 - - 945 132 - - - - 50,731 - - 779 34 - - (7,089) 44,455 - - 267...

  • Page 43
    ... gain/(loss) on investments Comprehensive income (loss) Exercise of stock options Shares purchased under the ESPP Amortization of deferred compensation Repurchase of common stock Balance at December 31, 2003 $ 2,521 1,091 7,846 (314) - - - - 72 233 - - (9) - - - - 9 - - 3,282) (23,107) 26...

  • Page 44
    ... assets Accounts payable and accrued expenses Minority interest Deferred revenue Net cash provided by (used in) operating activities Investing activities Sale (purchase) of short term investments, net Sale (purchase) of restricted cash investments Purchase of long term investments, net Purchase of...

  • Page 45

  • Page 46
    .... Stamps.com's service allows customers to buy and print USPS approved postage using a PC, an ordinary inkjet or laser printer and an Internet connection. Customers use our service to mail and ship a variety of mail pieces including postcards, envelopes, flats and packages using a wide range of mail...

  • Page 47
    ... are included in trademarks and patents in the accompanying balance sheets and are carried at cost less accumulated amortization. During 2001, the Company acquired intellectual property assets relating to Internet-based postage printing and management from E-Stamp Corporation for approximately...

  • Page 48
    ...personnel directly involved in the research and development of new technology and service offerings. Stock-Based Compensation The Company accounts for its employee stock plan under the intrinsic value method prescribed by Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued...

  • Page 49
    ...): 2003 2002 2001 Net loss-as reported Add: Stock price based employee expense included in net loss Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards Net loss-pro forma Basic and diluted net loss per common share-as reported Basic and...

  • Page 50
    ..., this Statement amends the disclosure requirement of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted this...

  • Page 51
    ... shares of Stamps.com common stock were reserved for issuance upon exercise of options and warrants assumed in the transaction. The acquisition was accounted for as a purchase in accordance with the provisions of APB No. 16. Under the purchase method of accounting, the purchase price was allocated...

  • Page 52
    ... 31, 2003 and 2002, the Company had no additional costs associated with the sale of its iShip multi-carrier shipping service assets. Change in Ownership and Shut-down of Subsidiary On November 16, 1999, the Company announced the formation of a subsidiary, EncrypTix, Inc., to develop secure printing...

  • Page 53
    ... Cash, Cash Equivalents and Investments The following table summarizes the Company's cash, restricted cash and investments as of December 31, 2003 and 2002 (in thousands): 2003 2002 Cash and equivalents: Cash Commercial paper Money market Municipal Bonds Corporate notes Certificates of deposit Cash...

  • Page 54
    ... the allowance for doubtful accounts totaled $1.2 million for the years ended December 31, 2001 and $0 for the years ended December 31, 2003 and 2002. 9. Property and Equipment Property and equipment is summarized as follows (in thousands): 2003 2002 Furniture and equipment Computers and software...

  • Page 55
    ... provisions which may limit the net operating losses carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership interests. The provision for income taxes is comprised of (in thousands): 2003 2002 2001 Current Federal State Deferred...

  • Page 56
    ... income taxes at the statutory federal income tax rate are as follows (in thousands): 2003 2002 2001 Income tax at statutory federal rate State income taxes, net of federal benefit Effect of tax credits Effect of permanent differences Other Change in valuation allowance $(3,171) (544) - 228 (1,139...

  • Page 57
    ... from locations and departments across the Company. In addition to the reduction of employees, the Company's restructuring plan includes costs associated with the termination of fixed-cost marketing deals and the redeployment of sales and marketing expenditures to programs that have a higher return...

  • Page 58
    ... 2000, John M. Payne (former Chairman of the Board, Chief Executive Officer and director) purchased 187,000 shares of the Company's common stock on the open market for an aggregate purchase price of approximately $6.0 million. Mr. Payne purchased the shares on margin and the margin account was...

  • Page 59
    ...be governed by the terms and conditions of the existing option agreements for those grants, unless the Company's compensation committee decides to extend one or more features of the 1999 Plan to those options. As of December 31, 2003, the total number of shares authorized for issuance under the 1999...

  • Page 60
    ...respectively. Fair value is calculated using the Black-Scholes valuation method. The following tables summarize information concerning outstanding and exercisable options at December 31, 2003 (in thousands, except number of years and per share amounts): Options Outstanding Weighted Average Remaining...

  • Page 61
    ... on each semi-annual purchase date. The purchase price per share will be equal to 85% of the fair market value per share on the participant's entry date into the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date. Upon adoption of the plan, 300,000...

  • Page 62
    ... 16, 2003 the Special Master sent reports and associated proposed orders to the court containing recommendations of the Special Master regarding claim construction and motions that had been brought by the parties. On December 4, 2002, Pitney Bowes filed a further patent infringement lawsuit against...

  • Page 63
    ..., issuers and insurers as to terms for a settlement of the litigation against the Company. The proposed settlement terms would not require Stamps.com to make any payments. The proposed settlement is subject to approval by the court. In addition to the class action lawsuits against the Company...

  • Page 64
    ... June September December (in thousands, except per share data) Fiscal Year 2003: Revenues Loss from operations Net loss Basic and diluted net loss per share Weighted average shares outstanding used in basic and diluted per-share calculation Fiscal Year 2002: Revenues Loss from operations Net loss...

  • Page 65
    ... this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Monica, State of California, on the 1st day of March, 2004. STAMPS.COM INC. By: /s/ KENNETH MCBRIDE Kenneth McBride Chief Executive Officer Pursuant to the requirements of...

  • Page 66
    ... Plan (No. 333-42764) of Stamps.com Inc. in our report dated January 27, 2004, with respect to the consolidated financial statements of Stamps.com Inc. included in the Annual Report (Form 10-K) for the years ended December 31, 2003 and 2002. ERNST & YOUNG LLP Los Angeles, California February...

  • Page 67
    ... is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant. As previously disclosed in the Stamps.com Inc.'s form 8-K filed on June 27, 2002, Stamps.com...

  • Page 68
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2003, of Stamps.com...

  • Page 69
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2003, of Stamps.com...

  • Page 70
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2003, of Stamps.com...

  • Page 71
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2003, of Stamps.com...

  • Page 72
    Exhibit 31.1 Form of Certification Required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended I, Ken McBride, certify that: 1. I have reviewed this Annual Report on Form 10-K of Stamps.com Inc.; 2. Based on my knowledge, this Annual Report does not contain any untrue ...

  • Page 73
    Exhibit 31.2 Form of Certification Required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended I, Kyle Huebner, certify that: 1. I have reviewed this Annual Report on Form 10-K of Stamps.com Inc.; 2. Based on my knowledge, this Annual Report does not contain any untrue ...

  • Page 74
    Exhibit 31.3 Form of Certification Required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended I, James A. Harper, certify that: 1. I have reviewed this Annual Report on Form 10-K of Stamps.com Inc.; 2. Based on my knowledge, this Annual Report does not contain any ...

  • Page 75
    ...OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ken McBride, Chief Executive Officer of the Company, certify, pursuant to 18...

  • Page 76
    ... OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kyle Huebner, Chief Financial Officer of the Company, certify, pursuant to...

  • Page 77
    ... 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Harper, Chief Accounting Officer of the Company, certify, pursuant to...