Stamps.com 2009 Annual Report Download

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STAMPS.COM INC
FORM 10-K
(Annual Report)
Filed 03/15/10 for the Period Ending 12/31/09
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 2010, 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 03/15/10 for the Period Ending 12/31/09 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
    ... reporting company 3 No  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes 3 As of June 30, 2009, the aggregate market value of voting common stock held by non-affiliates of the Registrant was $116,731,864 (based upon the closing price...

  • Page 4
    ... Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules 36 35 35 35 35 35 Item 1A. Risk Factors Item 1B Unresolved Staff Comments Item 2. Item 3. Item 4. Properties Legal Proceedings (Removed and Reserved) Item 7A. Quantitative and Qualitative Disclosures About Market...

  • Page 5
    ... 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 6
    ... "electronic stamps" directly onto envelopes, plain paper, or labels using only a standard personal computer, printer and Internet connection. Our service currently supports a variety of USPS and international mail classes. Customers can also add USPS Special Services such as Delivery Confirmation...

  • Page 7
    ... hides the actual amount paid for postage (a useful feature for ecommerce companies that may not want the recipient to see actual shipping cost information); (3) our software can help a business reduce its customer support costs by automatically generating and sending package delivery status e-mails...

  • Page 8
    ... referrals directly from the USPS website at www.USPS.com . Enhanced Promotion Online Advertising. We work with various companies to advertise our service in various places across the Internet. This channel typically offers an additional promotion directly to the customer by the partner in order...

  • Page 9
    ... print a large volume of shipping labels all at once, (2) database integration technology for seamless automatic import and export of information to and from a customer's internal order database and (3) direct integration with eCommerce platforms including eBay, PayPal, Amazon.com, Yahoo and Google...

  • Page 10
    ... 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 11
    ... Microsoft Office for use with Office's mailing capabilities such as mail merge or envelope printing, we support more address books than any other PC Postage software, and we are the only company that offers the additional customer choice of our Themed and Photo NetStamps labels. Based on USPS data...

  • Page 12
    ... security software. These servers create the data used to generate information-based indicia. They also process postage purchases using secure technology that meets USPS security requirements. Our service currently uses a Windows-based client application that supports a variety of label and envelope...

  • Page 13
    ...NASDAQ Stock Market under 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...

  • Page 14
    ...number, timing and significance of new products or services introduced by 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...

  • Page 15
    ...a 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 addition, we may offer new pricing plans for new and existing customers. We cannot be sure...

  • Page 16
    ... technology and practices, the practices and rules of payment processing companies, and the practices and rules of issuing financial institutions. If we do not effectively charge and bill our customers in future periods through credit cards and debit cards, it would adversely affect our results of...

  • Page 17
    ... secure transmission of postage and other confidential information. Advances in computer capabilities, new discoveries in security technology, or other events or developments may result in a compromise or breach of the algorithms we use to protect customer transaction data. Should someone circumvent...

  • Page 18
    ... other forms of postage, including traditional postage meters provided by companies such as Pitney Bowes, postage stamps and permit mail. We may not be able to establish or maintain a competitive position against current or future competitors as they enter the market. Many of our competitors have...

  • Page 19
    ... 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 20
    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 net operating loss ("NOL") carry-forwards of approximately $230 ...

  • Page 21
    ...of developments affecting our business, systems or expansion plans by us or others, and market volatility in general. As a result of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price. In the past, securities class...

  • Page 22
    ... meaning of the claims is scheduled for March 24, 2010. The Court has not scheduled a trial commencement date. In 2001, we were named, together with certain of our current and former board members and/or officers, as a defendant in several purported class-action lawsuits, filed in the U.S. District...

  • Page 23
    ... 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 sales prices reported on The NASDAQ Stock Market for our common stock for the following periods: High...

  • Page 24
    ... this data, as past results are not necessarily indicative of future performance. Base December 31, 2004 Year Ended December 31, 2005 2006 2007 2008 2009 Company/Index Stamps.com Inc. NASDAQ Market Index Morgan Stanley Internet Index Holders $ $ $ 100.00 100.00 100.00 $ 144.95 $ 101.37 $ 100.81...

  • Page 25
    ... a new six month share repurchase program, authorizing us to purchase up to 2,500,000 shares of our stock effective beginning in August 2009 through February 2010 upon expiration of the prior program. On February 11, 2010, we announced that our board of directors extended the currently authorized...

  • Page 26
    ... thereto, included elsewhere in this Report. Year Ended December 31, 2009 2008 2007 2006 2005 (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 from operations...

  • Page 27
    ... 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 individuals, small businesses, home offices, medium-size businesses and large enterprises...

  • Page 28
    ... We use several PC Postage marketing channels to acquire customers, including partnerships, online advertising, affiliate channel, direct mail, traditional media advertising and others. Beginning in 2007, we significantly increased our investment in our non-enhanced promotion marketing channels...

  • Page 29
    ...: (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 30
    11% increase from $319 million in 2008. Store orders increased by 7% in 2009 compared to 2008 while the average revenue per store order 25

  • Page 31
    ... 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 32
    ... enhanced promotion channel for our PC Postage business, which increased by 12% in 2009 compared with 2008. Ongoing PC Postage marketing programs include traditional advertising, partnership, customer referral programs, customer re-marketing efforts, telemarketing, direct mail and online advertising...

  • Page 33
    ... We expect the following trends for 2010 compared with 2009 We expect to continue to increase PC postage marketing spend on our non-enhanced promotion channels and expect that PC Postage revenue for customers acquired through these channels will increase in 2010. We expect to continue to reduce PC...

  • Page 34
    ...periods indicated: 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...

  • Page 35
    in 2008 from 21% in 2007. Because of the expiration of a licensing agreement in June 2007, we did not have any other revenue in 2008, compared to $907,000 in 2007. 29

  • Page 36
    ...our support personnel and efforts to improve the overall customer experience. Promotional expenses, which include free postage and a free digital scale offered to new customers, are included in cost of service revenue. Promotional expenses were approximately $791,000 and $1.7 million during 2008 and...

  • Page 37
    ... of our Company's common stock in 2009 compared with 2008. 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 discussion...

  • Page 38
    ... 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 39
    ...Officer, concluded that our internal control over financial reporting was effective as of December 31, 2009. Ernst & Young, LLP, the independent registered public accounting firm who also audited our consolidated financial statements, has issued an attestation report on the effectiveness of internal...

  • Page 40

  • Page 41
    ... and 2008, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009 of Stamps.com Inc. and subsidiary and our report dated March 15, 2010 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Los Angeles...

  • Page 42
    ...by reference herein to our proxy statement for our 2010 annual meeting of stockholders, which will be filed with the SEC by not later than 120 days after our fiscal year end. Item 14. Principal Accounting Fees and Services. The information required under this item is incorporated by reference herein...

  • Page 43
    ... 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). (5) Form of Stock Option Agreement (1999 Stock Incentive Plan). (5) Form of Addendum to Stock...

  • Page 44
    36

  • Page 45
    ... of Grant of Non-Employee Director - Automatic Stock Option (Annual) (1999 Stock Incentive Plan). (5) Form of Enrollment/Change Form for Employee Stock Purchase Plan. (5) Form of Stock Purchase Agreement for Employee Stock Purchase Plan. (5) Stock Purchase Agreement (12) Code of Ethics. (10) List of...

  • Page 46
    (10)Incorporated herein by reference to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008. (11)Incorporated herein by reference to the Company's Form 10-Q filed with the Securities and Exchange Commission on August 8, 2008. 37

  • Page 47
    TABLE OF CONTENTS (12)Filed with the Securities and Exchange Commission with this Annual Report on Form 10-K. + Confidential treatment requested and received as to certain portions. ++ Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule ...

  • Page 48
    ... 2009, 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 15, 2010 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Los Angeles, California March 15, 2010 F-1

  • Page 49
    ... BALANCE SHEETS (In Thousands, Except Per Share Data) December 31, 2009 2008 ASSETS Current assets: Cash and cash equivalents Restricted cash Short-term investments Accounts receivable, net Other current assets Total current assets Property and equipment, net Intangible assets, net Long-term...

  • Page 50
    F-2

  • Page 51
    ... Per Share Data) Year Ended December 31, 2009 2008 2007 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 52
    F-3

  • Page 53
    ... Shares issued under the ESPP Stock repurchase Balance at December 31, 2008 Comprehensive income: Net income Unrealized gain on investments Comprehensive income Stock-based compensation expense Exercise of stock options Shares issued under the ESPP Stock repurchase Balance at December 31, 2009 22...

  • Page 54

  • Page 55
    ... Repurchase of common stock Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow information: Income taxes paid during the period $ 706 $ 833 $ 354...

  • Page 56
    F-5

  • Page 57
    ... 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, small...

  • Page 58
    ... supplies store and are accounted for using the lower of cost (first-in, first-out (FIFO) method) or market. Inventories reported as a component of other current assets in 2009 and 2008 were $2.0 million and $2.8 million, respectively. Property and Equipment Property and equipment are stated at cost...

  • Page 59
    ... over the contract period. Commissions from the advertising or sale of products by a third party vendor to our customer base are recognized when the revenue is earned and collection is deemed probable. Customers pay face value for postage purchased for use through our PC Postage software, and the...

  • Page 60
    ...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 New PC Postage...

  • Page 61
    ... Accounting Policies - (continued) 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...

  • Page 62
    ...CONTENTS STAMPS.COM INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies - (continued) The following table sets forth the stock-based compensation expense that we recognized for the periods indicated (in thousands): 2009 2008 2007 Stock-based...

  • Page 63

  • Page 64
    ...STAMPS.COM INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies - (continued) Website Development Costs We develop and maintain our website. Costs associated with the operation of our website consist primarily of software and hardware purchased...

  • Page 65
    TABLE OF CONTENTS STAMPS.COM INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies - (continued) In June 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-01 (Topic 105), "Generally Accepted Accounting Principles," as codified ...

  • Page 66
    ... cash and investments as of December 31, 2009 and 2008 (in thousands): December 31, 2009 Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash and cash equivalents: Cash Money market Cash and cash equivalents Restricted cash: Corporate notes and bonds...

  • Page 67
    ...2,778 23,956 - $ 26,940 $ 26,734 Total restricted cash of approximately $554,000 as of December 31, 2009 and 2008 is related to a letter of credit for our facility, which we expect to be released in 2010 in connection with our amended lease agreement. 5. Fair Value Measurements Financial assets...

  • Page 68
    about market participants and pricing. F-15

  • Page 69
    ... 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 well established independent pricing vendors and broker-dealers...

  • Page 70
    F-16

  • Page 71
    ...equipment in 2008. 9. Income Taxes During 2009, our income tax expense consisted of alternative minimum federal tax and state income tax. Our effective income tax rate differs from the statutory income tax rate primarily as a result of our use of federal net operating losses (NOLs) to offset current...

  • Page 72
    F-17

  • Page 73
    ... 31, 2009 and 2008, respectively, which can be carried forward to offset future taxable liabilities. Our federal NOLs will begin to expire in 2020; our state NOLs will begin to expire in 2014. The federal tax credits begin to expire in 2020. Under California law, California tax credits do not...

  • Page 74
    ... OF CONTENTS STAMPS.COM INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Income Taxes - (continued) The provision for income taxes consists of (in thousands): 2009 2008 2007 Current: Federal State $ 165 389 554 Deferred: Federal State - - - Provision for income taxes $ 554 3,134...

  • Page 75
    amount of $554,000. F-19

  • Page 76
    ... the 1999 Plan to those options. In June 2009, our 1999 Plan expired and no further options grants can be made under this plan. A summary of stock option activity is as follows (in thousands, except per share amounts): Options Outstanding Number of Options Weighted Average Exercise Price Balance at...

  • Page 77
    F-20

  • Page 78
    ... Stock Incentive Plan for 2009: Number of Stock Options (in Thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value (in Thousands) Outstanding at December 31, 2008 Granted Exercised Forfeited or expired Balance at December 31, 2009...

  • Page 79
    F-21

  • Page 80
    ... purchase date. The purchase price per share is 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, 150,000 shares of common stock...

  • Page 81
    ... meaning of the claims is scheduled for March 24, 2010. The Court has not scheduled a trial commencement date. In 2001, we were named, together with certain of our current and former board members and/or officers, as a defendant in several purported class-action lawsuits, filed in the U.S. District...

  • Page 82
    ...,216 14,692 1,744 1,731 $ 21,678 15,213 2,052 2,171 Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year shown elsewhere in our Annual Report on Form 10K. F-24

  • Page 83
    ... 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 15th day of March 2010. STAMPS.COM INC. By: /s/ Kenneth McBride Kenneth McBride Chief Executive Officer Pursuant to the...

  • Page 84
    ... with an address at 12959 Coral Tree Place, Los Angeles, CA 90066 (hereinafter referred to as "Stamps.com"). WHEREAS, Seller is the beneficial owner and holder of 1,267,952 issued and outstanding shares of the capital stock of Stamps.com (the " Shares "); WHEREAS, Stamps.com desires to purchase the...

  • Page 85
    ... Seller And Stamps.com . Seller and Stamps.com hereby represent and warrant to each other that there has been no act or omission by either party which would give rise to any valid claim against either party hereto for a brokerage commission, finder's fee, or other like payment in connection with the...

  • Page 86
    Exhibit A Stamps.com Account Information [_____] Seller Wire Information [_____]

  • Page 87
    ...1999 Stock Incentive Plan of Stamps.com Inc.; of our reports dated March 15, 2010, with respect to the financial statements of Stamps.com Inc. and subsidiary and the effectiveness of internal control over financial reporting of Stamps.com Inc. and subsidiary, included in this Annual Report (Form 10...

  • Page 88
    ... 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, 2009, of Stamps.com...

  • Page 89
    ... 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, 2009, of Stamps.com...

  • Page 90
    ... 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, 2009, of Stamps.com...

  • Page 91
    ...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 material...

  • Page 92
    ....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 93
    ... OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ended December 31, 2009 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 94
    ...OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ended December 31, 2009 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...