Stamps.com 2007 Annual Report Download

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STAMPS.COM INC
FORM 10-K
(Annual Report)
Filed 03/14/08 for the Period Ending 12/31/07
Address 12959 CORAL TREE PLACE
LOS ANGELES, CA 90066-7020
Telephone 3104825800
CIK 0001082923
Symbol STMP
SIC Code 5961 - Catalog and Mail-Order Houses
Industry Retail (Catalog & Mail Order)
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2008, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    STAMPS.COM INC FORM 10-K (Annual Report) Filed 03/14/08 for the Period Ending 12/31/07 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 12959 CORAL TREE PLACE LOS ANGELES, CA 90066-7020 3104825800 0001082923 STMP 5961 - Catalog and Mail-Order Houses Retail (Catalog & Mail Order) ...

  • Page 2
    ... Identification No.) 12959 Coral Tree Place Los Angeles, California 90066 (Address of Principal Executive Offices) (310) 482-5800 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which...

  • Page 3
    ...7. Item 7A. Item 8. Business Risk Factors Properties Legal Proceedings Submission of Matters to a Vote of Security Holders PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis...

  • Page 4
    ... of this Report. Stamps.com, NetStamps, Stamps.com Internet Postage, PhotoStamps, Hidden Postage and the Stamps.com logo are our trademarks. This Report also references trademarks of other entities. SPECIAL NOTICE REGARDING PURCHASES OF MORE THAN 5% OF OUR STOCK We currently have federal and state...

  • Page 5
    ..., or electronic stamps, directly onto envelopes, plain paper, or labels using ordinary laser or inkjet printers. Our service currently supports a variety of USPS classes including First-Class Mail TM , Priority Mail TM , Express Mail TM , Parcel Post TM , Media Mail TM , Bound Printed Matter, and...

  • Page 6
    ... class, mail form, weight and distance to the destination; (3) tracking and controlling postage expenditures in a small office using cost codes built into our software; (4) getting electronic Delivery or Signature Confirmation at approximately 50 cents less per package than the comparable services...

  • Page 7
    ...direct sales force for higher cost enterprise versions of our PC Postage service. • • • Marketing of PhotoStamps Our PhotoStamps marketing has traditionally been targeted primarily at consumers. Our consumer marketing strategy includes the following types of programs: (1) online advertising...

  • Page 8
    ... alternative business strategies and models to grow the PhotoStamps business line. Competition Some of our current direct competitors in the PC Postage and Customized Postage categories include: Endicia.com/Dymo. Endicia offers a software-based PC Postage service traditionally targeted at shipping...

  • Page 9
    ... Online at the monthly fee of $4.99, and began marketing an entirely new PC Postage offering by the name of ShipStream for a monthly fee of $18.99. During 2004, Pitney Bowes also began offering an Internet-based service for printing a single label for use in shipping a package that does not require...

  • Page 10
    ... 2003, we improved our shipping features by adding Hidden Postage TM , our package insurance, the ability to send shipment notification e-mails 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 COD...

  • Page 11
    ... label feature but will not apply to packages sent using NetStamps as an electronic tracking barcode will be required. Our Technology Our servers are located in a high-security data center and operate with proprietary security software. These servers create the data used to generate information...

  • Page 12
    ... are focused on growing our business. A complete set of our old and new quarterly customer metrics over the past two fiscal years is available currently at http://investor.stamps.com (under a tab on the left side called "Company Information"). 9 TABLE OF CONTENTS Item 1A. Risk Factors. You should...

  • Page 13
    ... large base of active customers. In order to attract customers in the future, we may run special promotions and offers such as trial periods, discounts on fees, postage and supplies, and other promotions. In additional, we may offer new pricing plans for new and existing customers. We cannot be sure...

  • Page 14
    ... a change in our business practices which increase the fees on a cost-per-transaction basis. If these fees for accepting payment methods increase in future periods, it may adversely affect our results of operations. A decline in our ability to effectively bill our customers by credit card and debit...

  • Page 15
    ...regulations. The USPS could change its certification requirements or specifications for PC Postage or revoke or suspend the approval of one or more of our services at any time. If at any time we fail to meet USPS requirements, we may be prohibited from offering our services and our business would be...

  • Page 16
    ... from new technologies or the expansion of existing technologies approved for use by the USPS. We may also face competition from a number of indirect competitors that specialize in electronic commerce and other companies with substantial customer bases in the computer and other technical fields...

  • Page 17
    ...and business risks. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our online operations. The Internet and the electronic commerce industry are characterized by rapid technological change, changes in user and customer requirements and...

  • Page 18
    ... above their 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...

  • Page 19
    ... and stock price manipulations in connection with the sale of our common stock. The lawsuits allege that we and/or certain of our officers or directors knew of or recklessly disregarded these practices by the underwriter defendants, and failed to disclose them in our public filings. Plaintiffs...

  • Page 20
    ... Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on The NASDAQ Stock Market under the symbol "STMP". The following table sets forth the range of high and low closing sales prices reported on The NASDAQ Stock Market for our common stock for...

  • Page 21
    ... and Rights (a) Weighted-average Exercise Price of Outstanding Options, Warrants and Rights Number of Shares of Common Stock Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in Column (a)) 1,829,218 Recent Sales of Unregistered Securities $16.99...

  • Page 22
    ... Thousands, Except per Share Data) Statement of Operations Data: Revenues Cost and expenses: Cost of sales Research and development Sales and marketing General and administrative Income (loss) from operations Other income, net Provision for income taxes Net income (loss) Basic net income (loss) per...

  • Page 23
    ... use our service to mail and ship a variety of mail pieces including postcards, envelopes, flats and packages, using a wide range of USPS mail classes including First Class Mail®, Priority Mail®, Express Mail®, Media Mail®, Parcel Post®, and others. Our customers include home businesses...

  • Page 24
    ...: (1) service fees charged to customers for use of our PC Postage service; (2) product sales consisting of Supplies Store revenue from the direct sale of consumables and supplies (3) insurance revenue from our branded insurance offering; (4) PhotoStamps revenue from our PhotoStamps business; and...

  • Page 25
    ... of customer service, certain promotional expenses, system operating costs, credit card processing fees, the cost of postage for PhotoStamps, image review, printing and fulfillment costs for PhotoStamps, parcel insurance offering costs, customer misprints and products sold through our Supplies Store...

  • Page 26
    ..., partnerships, customer referral programs, customer re-marketing efforts, telemarketing, direct mail, and online advertising. We expect to increase our sales and marketing expenses in our PC Postage business during 2008, and to decrease sales and marketing expenses in our PhotoStamps business as we...

  • Page 27
    ... we made to our PC postage software features. Total postage printed using our service during 2006 was up 21% to approximately $229 million from approximately $189 million during 2005. We continued to attract a significant number of new customers from online advertising and direct mail, our primary...

  • Page 28
    ... sales through our Supplies Store as a result of the growth in the size of our customer base and our continued effort to market these offerings to our existing and new customers. Additionally, in September 2006 we launched a new Mailing & Shipping Supplies Store within version 6.0 of the PC Postage...

  • Page 29
    ... long term money market funds, commercial paper, corporate notes and municipal securities and do not engage in hedging or speculative activities. In November 2003, we entered into a facility lease agreement commencing in March 2004 for our new corporate headquarters with aggregate lease payments of...

  • Page 30
    ...TABLE OF CONTENTS Promotional Expense New PC Postage customers are typically offered promotional items that are redeemed using coupons that are qualified for redemption after a customer is successfully billed beyond an initial trial period. This includes free postage and a free digital scale and is...

  • Page 31
    ... and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for fiscal...

  • Page 32
    ... herein. Item 9A(T). Control and Procedures. Not applicable. Item 9B. Other Information. None. 30 TABLE OF CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Stamps.com Inc. We have audited Stamps.com Inc.'s internal control over financial...

  • Page 33
    ... of Stamps.com Inc. and our report dated March 13, 2008 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Los Angeles, California March 13, 2008 31 TABLE OF CONTENTS PART III Item 10. Directors, Executive Officers and Corporate Governance. We incorporate by reference the information...

  • Page 34
    ... 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) Patent License and Settlement Agreement dated December 19, 2003 by and between Stamps.com Inc. and Pitney Bowes...

  • Page 35
    ... - 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) (1) Incorporated herein by reference to the Company's Registration Statement on Form S-1, originally filed with the...

  • Page 36
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 37
    ...STAMPS.COM INC. BALANCE SHEETS (In Thousands, Except per Share Data) December 31, 2007 2006 ASSETS Current assets: Cash and cash equivalents Restricted cash Short-term investments Trade accounts receivable, net Other accounts... capital Accumulated deficit Treasury stock, at cost, 4,445 shares in 2007...

  • Page 38
    ... Data) Year Ended December 31, 2007 2006 2005 Revenues: Subscription PhotoStamps Product Insurance Other Total revenues Cost of revenues: Subscription PhotoStamps Product Insurance Other Total cost of revenues Gross profit Operating expenses: Sales and marketing Research and development General...

  • Page 39
    ...STAMPS.COM INC. STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Common Stock Shares Amount Additional Paid-in Capital Treasury Stock at Cost... investments Comprehensive income Stock-based compensation expense Exercise of stock options Shares issued under the ESPP Stock repurchase Balance at ...

  • Page 40
    ... expense Changes in operating assets and liabilities: Trade accounts receivable Other accounts receivable Other current assets Other assets Deferred revenue Accounts payable and accrued expenses Net cash provided by operating activities Investing activities: Sale of short-term investments Purchase...

  • Page 41
    ... 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 USPS mail classes including First Class Mail®, Priority Mail®, Express Mail®, Media Mail®, Parcel Post®, and...

  • Page 42
    ... maturity and are intended to limit market risk by restricting our investments. From time to time, our investments held with financial institutions may exceed Federal Deposit Insurance Corporation insurance limits. Interest rate fluctuations and changes in credit ratings impact the carrying value of...

  • Page 43
    ... revenue is based on monthly convenience fees and is recognized in the period that services are provided. Product sales, net of return allowances, are recorded when the products are shipped and title passes to customers. Sales of items, including PhotoStamps, sold to customers are made pursuant to...

  • Page 44
    ... of customer service, certain promotional expenses, system operating costs, credit card processing fees, the cost of postage for PhotoStamps, image review, printing and fulfillment costs for PhotoStamps, parcel insurance offering costs, customer misprints and products sold through our Supplies Store...

  • Page 45
    ... to customers. 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...

  • Page 46
    ... in accordance with the provisions of SFAS 123R. SFAS 123R requires us to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model and to recognize stock-based compensation expense during each period based on the value of that portion of share-based...

  • Page 47
    ...- pro forma $ 10,429 - (1,332) $ $ $ $ $ 9,097 0.46 0.44 0.40 0.38 In our SFAS 123R calculations, we use the Black-Scholes option valuation model, which requires us to make a number of highly complex and subjective assumptions, including stock price volatility, expected term, risk-free interest...

  • Page 48
    ... website consist primarily of software and hardware purchased from third parties, and the costs are capitalized based on our capitalization policy. These capitalized costs are amortized based on their estimated useful life. Costs related to the maintenance and development of our website are expensed...

  • Page 49
    ... and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for fiscal...

  • Page 50
    ... Fair Value Cash and cash equivalents: Cash Money market Commercial paper Cash and cash equivalents Restricted cash: Corporate notes and bonds Restricted cash Short-term investments: Corporate notes and bonds U.S. Government and agency securities Short-term investments Long-term investments...

  • Page 51
    ...2007 and 2006 (in thousands): 2007 2006 Payroll and related accrual Legal and related accrual Deferred rent accrual Sales and marketing related accrual Other accruals Accounts payable and Accrued expenses 6. Allowance for Doubtful Accounts $ 1,879 405 256 3,088 4,307 $ 2,019 234 293 4,298 3,615...

  • Page 52
    ... 2012. The federal and state credits begin to expire in 2027. The Federal Tax Reform Act of 1986 and similar state tax laws contain 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...

  • Page 53
    ... taxes, net of federal benefit Effect of permanent differences Other Change in valuation allowance $ 3,757 730 36 3,000 (7,136) $ 5,653 1,095 1 (4,336) (2,249) $ 3,630 645 1 (1,165) (2,865) $ 9. Commitments and Contingencies Operating Leases 387 $ 164 $ 246 The following is a schedule...

  • Page 54
    ... respect to vesting periods applicable to a particular grant. Each option granted has a 10 year contractual life. During 2007, 2006 and 2005, we issued options to purchase a total of 1.4 million, 318,500 and 265,500 shares of common stock, respectively, at prices at or above the market price at the...

  • Page 55
    ... deductions will be applied to the purchase of shares 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...

  • Page 56
    ... 2005, respectively, related to this plan. 15. Legal Proceedings In addition to the legal proceedings described in Item 3 of our 2007 Annual Report on form 10-K, we are a party to various other legal actions, claims and proceedings incidental to our business. Litigation is uncertain, and the outcome...

  • Page 57
    ... this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on the 14 day of March 2008. STAMPS.COM INC. By: /s/ Kenneth McBride Kenneth McBride Chief Executive Officer Pursuant to the requirements of...

  • Page 58
    Mohan P. Ananda * G. Bradford Jones * Lloyd I. Miller Director March 14, 2008 Director March 14, 2008 * By Kenneth McBride as Attorney-in-fact.

  • Page 59
    ... when authorized or otherwise legally obligated to disclose the information. 7. They should proactively promote ethical behavior as a responsible partner among peers in their work environment and community. 8. They must responsibly use and control all assets and resources employed or entrusted to...

  • Page 60
    ... to the 1999 Stock Incentive Plan, 1999 Employee Stock Purchase Plan, and IShip.com, Inc. Amended and Restated 1997 Stock Plan of Stamps.com Inc, (3) Registration Statement (Form S-8 No. 333-42764) pertaining to the 1999 Stock Incentive Plan of Stamps.com Inc.; of our reports dated March 13...

  • Page 61
    ..., 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, 2007, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act of 1934, as amended, and to file the same, with exhibits thereto, and other documents in...

  • Page 62
    ..., 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, 2007, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act of 1934, as amended, and to file the same, with exhibits thereto, and other documents in...

  • Page 63
    ..., 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, 2007, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act of 1934, as amended, and to file the same, with exhibits thereto, and other documents in...

  • Page 64
    ..., 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, 2007, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act of 1934, as amended, and to file the same, with exhibits thereto, and other documents in...

  • Page 65
    Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 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 report does not contain any untrue statement of a material fact or omit to state a...

  • Page 66

  • Page 67
    ....2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 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 report does not contain any untrue statement of a material fact or omit to state a material...

  • Page 68

  • Page 69
    ... OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ended December 31, 2007 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 70
    ...OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ended December 31, 2007 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 18...