Stamps.com 2008 Annual Report Download

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STAMPS.COM INC
FORM 10-K
(Annual Report)
Filed 03/13/09 for the Period Ending 12/31/08
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 Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2009, 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
    ... INC FORM 10-K (Annual Report) Filed 03/13/09 for the Period Ending 12/31/08 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) Services 12...

  • Page 2
    ... Tree Place Los Angeles, California 90066 (Address of Principal Executive Offices and Zip Code) (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 Registered Common Stock...

  • Page 3
    ... 10-K. TABLE OF CONTENTS STAMPS.COM INC. FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2008 TABLE OF CONTENTS Page PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Business Risk Factors. Unresolved Staff Comments Properties Legal Proceedings Submission of...

  • 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
    ... USPS and international mail classes. Customers can also add USPS Special Services such as Delivery Confirmation TM , Signature Confirmation TM , Registered Mail, Certified Mail, Insured Mail, Return Receipt, Collect on Delivery and Restricted Delivery to their mail pieces. After installing our free...

  • Page 6
    ... Priority and Global Express Mail; (5) getting electronic Delivery or Signature Confirmation at 57 to 65 cents less per package than the comparable services at a retail USPS post office; and (6) paying a monthly service fee that is up to 75% less than the total cost of an entrylevel postage meter...

  • Page 7
    ...based emails, and other online advertising vehicles. USPS Referrals . We utilize the nationwide USPS Account Manager network to market and sell our services to customers. We market to the account managers by attending regional and national meetings and forums, and participating in local vendor calls...

  • Page 8
    ... use the Dymo Stamps feature, however, customers must purchase the Dymo Stamps labels through Endicia at a price that is significantly higher per label than our price for our NetStamps labels. Pitney Bowes, Inc. Pitney Bowes is the current market leader in the U.S. traditional postage meter business...

  • Page 9
    ... for printing a single label for use in shipping a package that does not require a monthly subscription fee, in partnership with eBay. Pitney Bowes offers a customized postage offering (branded ZazzleStamps) through a partnership with Zazzle.com, Inc., a small, private U.S. company that specializes...

  • Page 10
    ...USPS will grant any of our requests. Our customers currently receive a discounted rate relative to prices available at retail post offices for Priority Mail, Express Mail, Global Priority Mail and Global Express Mail and for electronic confirmation services such as delivery or signature confirmation...

  • Page 11
    ... the symbol "STMP." Our principal executive offices are located at 12959 Coral Tree Place, Los Angeles, California, 90066, and our telephone number is (310) 482-5800. Available Information We make available on our website ( www.stamps.com ), free of charge, our annual report on Form 10-K, quarterly...

  • Page 12
    ...us and by our competitors; Our ability to develop, market and introduce new and enhanced products and services on a timely basis; The level of service and price competition; Our operating expenses; USPS regulation and policies relating to PC Postage and PhotoStamps; and General economic factors. We...

  • Page 13
    ...In order to acquire customers and achieve widespread distribution and use of our services and products, 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...

  • Page 14
    ... restrictions, such as confidentiality agreements and licenses, to establish and protect our rights in our products, services, know-how and information. We have a portfolio of issued and pending US and international patents. We also have a number of registered and unregistered trademarks. We plan...

  • Page 15
    ... Pitney Bowes, who enter the online postage market, our revenues and operating results will suffer. The USPS could decide to suspend or cancel the current market test of PhotoStamps, and may do so in the event that there is sufficient cause to believe that the market test presents unacceptable risk...

  • Page 16
    ... 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 17
    ... our services or prosecute us for violations of their laws. 14 TABLE OF CONTENTS Risks Related to Our Stock The tax value of our net operating losses could be impaired if we trigger a change of control pursuant to Section 382 of the Internal Revenue Code. We currently have federal and state...

  • Page 18
    ... to have the USPS block the acquisition by a foreign person of our common stock or our company in order to prevent the combined company from becoming a more effective competitor in the market for PC Postage. Our stock price is volatile. The price at which our common stock has traded has fluctuated...

  • Page 19
    ... with our initial public offering and a secondary offering of our common stock. Plaintiffs seek damages and statutory compensation, including interest, costs and expenses (including attorneys' fees). We reached a proposed settlement which would not have required us to make any payments, which was...

  • Page 20
    ...table sets forth the closing sales prices per share of our common stock on The NASDAQ Stock Market on (i) December 31, 2008 and (ii) February 27, 2009. Closing Price December 31, 2008 February 27, 2009 $ $ 9.83 8.32 18 TABLE OF CONTENTS Stock Performance Graph The information contained in this...

  • Page 21
    ... table provides information as of December 31, 2008 with respect to shares of our common stock that may be issued under our existing stock incentive plans, all of which were approved by our shareholders: Number of Shares of Common Stock to Be Issued upon Exercise of Outstanding Options, Warrants and...

  • Page 22
    ... thereto, included elsewhere in this Report. Year Ended December 31, 2008 2007 2006 2005 2004 (In 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...

  • Page 23
    ... Stamps.com® is the leading provider of Internet-based postage solutions. 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...

  • Page 24
    ...: Twelve Months Ended December 31, 2008 2007 Total Revenues: Service Product Insurance PhotoStamps Other Total revenues Cost of revenues: Service Product Insurance PhotoStamps Other Total cost of revenues Gross profit Operating expenses: Sales and marketing Research and development General 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
    ..., customer referral programs, customer re-marketing efforts, telemarketing, direct mail, and online advertising. Research and Development Research and development expense principally consists of compensation for personnel involved in the development of our services, depreciation of equipment and...

  • Page 27
    ... We expect the following trends for 2009 compared with 2008. • We expect to increase our PC postage marketing spending on customers acquired through our non-enhanced promotion channels and expect that subscriber related revenue for customers acquired through these channels will increase slightly...

  • Page 28
    ...in our paid customer base; (3) marketing the supplies store to our existing customer base; (4) the additional SKUs we added to our store; and (5) growth in postage printed, which helps drive sales of consumable supplies such as labels. Total postage printed by customers using our service during 2007...

  • Page 29
    ... decreased one percentage point to 11% in 2007 as compared to 12% in 2006. Promotional expenses, which includes free postage and a free digital scale offered to new customers, are included in cost of service revenue. Promotional expenses were approximately $2.2 million and $1.7 million in 2006 and...

  • Page 30
    ... our Company's common stock in 2008 compared with 2007. 29 TABLE OF CONTENTS We believe our available cash and marketable securities, together with the cash flow from operations will be sufficient to fund our business for at least the next twelve months. Critical Accounting Policies General . The...

  • Page 31
    ... from estimates. 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 32
    ... that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. As of the end of the period covered by this Report, our management evaluated, with the participation of our Principal Executive Officer and...

  • Page 33
    ...financial reporting. Item 9B. Other Information. None. 32 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 reporting as of December 31, 2008, based...

  • Page 34
    ... 31, 2008 of Stamps.com Inc. and our report dated March 13, 2009 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Los Angeles, California March 13, 2009 33 TABLE OF CONTENTS PART III. Item 10. Directors, Executive Officers and Corporate Governance. We have adopted a written code of...

  • Page 35
    ... and officers. (1) Patent License and Settlement Agreement dated December 19, 2003 by and between Stamps.com Inc. and Pitney Bowes Inc. (8) Agreement dated July 14, 2004 by and between Stamps.com Inc., eBay Inc. and PayPal, Inc. (9) Form of Notice of Grant of Stock Option (1999 Stock Incentive Plan...

  • Page 36
    ... 10.18 10.19 14 23.1 24.1 24.2 24.3 24.4 31.1 31.2 32.1 32.2 Form of Enrollment/Change Form for Employee Stock Purchase Plan. (5) Form of Stock Purchase Agreement for Employee Stock Purchase Plan. (5) Code of Ethics. (10) Consent of Ernst & Young LLP. (12) Power of Attorney by G. Bradford...

  • Page 37
    ... reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2009 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Los Angeles...

  • Page 38
    ... AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses Deferred revenue Total current liabilities Commitments and contingencies Stockholders' equity: Common stock, $.001 par value Authorized shares 47,500 in 2008 and 2007 Issued shares: 24,368 in 2008 and 24,258 in...

  • Page 39
    ... Ended December 31, 2008 2007 2006 Revenues: Service Product Insurance PhotoStamps Other Total revenues Cost of revenues: Service Product Insurance PhotoStamps Other Total cost of revenues Gross profit Operating expenses: Sales and marketing Research and development General and administrative Total...

  • Page 40
    ... 31, 2007 Comprehensive income: Net income Unrealized loss on investments Comprehensive income Stock-based compensation expense Exercise of stock options Shares issued under the ESPP Stock repurchase Balance at December 31, 2008 23,063 - - 46 - - 607,869 - - (3,737) - - (493,683) 16,462 - (555...

  • Page 41
    ... reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation expense Changes in operating assets and liabilities: Trade accounts receivable Other accounts receivable Other current assets Other assets Deferred revenue Deferred income taxes...

  • Page 42
    .... 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 others. Our customers include home...

  • Page 43
    ... financial institutions may exceed Federal Deposit Insurance Corporation insurance limits. Interest rate fluctuations and changes in credit ratings impact the carrying value of the portfolio. During 2008, 2007, 2006 and 2005 we did not recognize revenue from any one customer that represented 10% or...

  • Page 44
    ... the price of postage and is made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. On a limited basis, we allow third parties to offer products and promotions to our customer base. These arrangements generally provide payment in...

  • Page 45
    ... 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 and the related costs of shipping and handling. Promotional Expense...

  • Page 46
    ... and Exchange Commission rules included in Staff Accounting Bulletin No. 107 (SAB 107). 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...

  • Page 47
    ...1,304 2,707 $ 799 1,178 2,638 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 rates and actual and projected employee...

  • Page 48
    ...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 as incurred. Recent Accounting Pronouncements In December 2007, the FASB issued Financial Statement Position No...

  • Page 49
    In April 2008, the FASB issued Financial Statement Position No. SFAS 142-3, "Determination of the Useful Life of Intangible Assets" (FSP SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a ...

  • Page 50
    ... Money market Cash and cash equivalents Restricted cash: Corporate notes and bonds Restricted...43,667 7,784 35,883 43,667 F-14 TABLE OF CONTENTS STAMPS.COM INC. NOTES TO FINANCIAL STATEMENTS 4. Cash, Cash Equivalents ...as of December 31, 2008 (in thousands): Amortized Cost Estimated Fair Value Due ...

  • Page 51
    ...available-for-sale debt securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from...

  • Page 52
    ... Taxes - (continued) minimum federal taxes and state income taxes resulted in an overall tax benefit of $2.8 million. In September 2008, the State of California passed a new legislation temporarily suspending the use of net operating losses to offset current state income tax expense. As a result, we...

  • Page 53
    ... begin to expire in 2014. The federal credits begin to expire in 2018. The Federal Tax Reform Act of 1986 and similar state tax laws contain provisions that may limit the NOL carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership...

  • Page 54
    ... into a facility lease agreement commencing on March 2004 for our corporate headquarters with aggregate lease payments of approximately $4.0 million through February 2010. As of December 31, 2008, we maintained a letter of credit for the facility lease in the amount of $554,000. 794 134 - - - 928

  • Page 55
    ... has a 10 year contractual life. During 2008, 2007 and 2006, we issued options to purchase approximately 528,000, 1.4 million and 318,500 shares of common stock, respectively, at prices at or above the market price at the date of grant. F-19 TABLE OF CONTENTS STAMPS.COM INC. NOTES TO FINANCIAL...

  • Page 56
    ...-average exercise price $ 7.49 - $ 7.49 F-20 TABLE OF CONTENTS STAMPS.COM INC. NOTES TO FINANCIAL STATEMENTS 11. Employee Stock Plans - (continued) The following tables summarize information concerning outstanding and exercisable options at December 31, 2008 (in thousands, except number of...

  • Page 57
    ..., related to this plan. F-21 TABLE OF CONTENTS STAMPS.COM INC. NOTES TO FINANCIAL STATEMENTS 12. Legal Proceedings In addition to the legal proceedings described in Item 3 of our 2008 Annual Report on form 10-K, we are a party to various other legal actions, claims and proceedings incidental to...

  • Page 58
    ... has duly caused 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 13th day of March 2009. STAMPS.COM INC. By: /s/ Kenneth McBride Kenneth McBride Chief Executive Officer Pursuant to the...

  • Page 59

  • Page 60
    ... to the financial statements of Stamps.com Inc. and the effectiveness of internal control over financial reporting of Stamps.com Inc., included in this Annual Report (Form 10-K) of Stamps.com Inc. for the year ended December 31, 2008. /s/ ERNST & YOUNG LLP Los Angeles, California March 13, 2009

  • Page 61
    ... 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, 2008, of Stamps.com...

  • Page 62
    ... 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, 2008, of Stamps.com...

  • Page 63
    ... 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, 2008, of Stamps.com...

  • Page 64
    ... 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, 2008, of Stamps.com...

  • Page 65
    ... information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 13, 2009 /s/ KEN MCBRIDE Ken McBride Chief Executive Officer (Principal Executive Officer...

  • Page 66
    ... and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 13, 2009 /s/ KYLE HUEBNER Kyle Huebner Chief Financial Officer (Principal Financial and Accounting Officer)

  • Page 67
    ... OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ended December 31, 2008 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 68
    ...OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ended December 31, 2008 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...