Stamps.com 2004 Annual Report Download - page 30

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may vary as it will depend on factors such as the level of share-based payments granted in the future. Had we
adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 2 to our
financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an operation cash flow as required under
current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in
periods after adoption. The amount of operating cash flows recognized in prior periods for such excess tax
deductions were $0 in 2004, 2003 and 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio.
We have not used derivative financial instruments in our investment portfolio. Our cash equivalents and investments
are comprised of money market, U.S. government obligations and public corporate debt securities with weighted
average maturities of 358 days at December 31, 2004. Our cash equivalents and investments, net of restricted cash,
approximated $87 million and had a related weighted average interest rate of approximately 2.8%. Interest rate
fluctuations impact the carrying value of the portfolio. We do not believe that the future market risks related to the
above securities will have a material adverse impact on our financial position, results of operations or liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements, schedules and supplementary data, as listed under Item 15, appear in a separate
section of this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act of 19934
(the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer concluded that, as of the end of the period covered by this report, our disclosure controls and
procedures were effective in timely alerting them to the material information relating to us required to be included in
the reports we file or submit under the Exchange Act.
Changes in internal controls.
During the fiscal quarter ended December 31, 2004, there has been no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our internal control system was
designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and
fair presentation of published financial statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on our assessment and those criteria, management, including our CEO, CFO and CAO,
concluded that our internal control over financial reporting was effective as of December 31, 2004.
Our management’ s assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as
stated in their report which is included below.