EX-99.2 4 ex99_2.htm EXHIBIT 99.2

Exhibit 99.2

Unaudited Pro Forma Condensed Combined Financial Statements

On November 24, 2015, Stamps.com Inc. ("SDC") filed a Current Report on Form 8-K to report that on November 18, 2015, Stamps.com Inc completed the acquisition of PSI Systems, Inc. ("Endicia") from Newell Rubbermaid Inc. (“Parent”). The following unaudited pro forma condensed combined balance sheet combines balance sheet data for SDC and Endicia as of September 30, 2015 as if the acquisition had been completed on September 30, 2015. The following unaudited pro forma condensed combined statements of operations combines the statement of operations data for SDC and Endicia for the nine months ended September 30, 2015 and the year ended December 31, 2014 as if the acquisition had been completed on January 1, 2014. The unaudited pro forma condensed combined balance sheet and statements of operations data include results of SDC’s subsidiaries Auctane LLC and Interapptive Inc., which were acquired on June 14, 2014 and August 29, 2014, respectively, from the dates of their respective acquisitions.  The pro forma financial information is based upon the historical consolidated financial statements of SDC and Endicia and the assumptions, estimates, and adjustments are described in the notes to the unaudited pro forma condensed combined financial statements.  The assumption, estimates, and adjustments are preliminary and have been made solely for purposes of developing such pro forma information. The unaudited pro forma
condensed combined financial statements include adjustments that have been made to reflect the preliminary purchase price allocations. The preliminary allocations represent estimates made for purpose of these pro forma financial statements and are subject to change upon a final determination of fair value.

The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated results of operations of SDC that would have been reported had the acquisition occurred on the dates indicated, nor do they represent a forecast of the consolidated results of operations of SDC for any future period. Furthermore, no effect has been given in the unaudited pro forma condensed combined statements of operations for potential synergistic benefits or cost savings that may be realized through the combination of SDC and Endicia or costs that may be incurred in integrating SDC and Endicia. The unaudited pro forma condensed combined financial statements should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in SDC’s Annual Report on Form 10-K for the period ended December 31, 2014 and Quarterly Report on Form 10-Q for the period ended September 30, 2015, which are on file with the SEC, and the audited financial statements of Endicia included in this Form 8-K/A.
 

STAMPS.COM INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2015
(In thousands)

   
SDC
(Historical)
   
Endicia
(Historical)
   
Pro forma
Adjustments
   
Pro forma
Combined
 
Assets
                   
Current assets:
                   
Cash and cash equivalents
 
$
89,559
   
$
7,955
   
$
(54,751
)
   
A,B
 
 
$
42,763
 
Short-term investments
   
9,617
     
     
             
9,617
 
Accounts receivable, net
   
15,295
     
4,764
     
5,341
      B
 
   
25,400
 
Deferred income taxes
   
2,143
     
538
     
(538
)
    C
 
   
2,143
 
Other current assets
   
7,630
     
1,340
     
(275
)
    B
 
   
8,695
 
Total current assets
   
124,244
     
14,597
     
(50,223
)
           
88,618
 
Property and equipment, net
   
29,251
     
3,192
     
123
      B
 
   
32,566
 
Goodwill
   
66,893
     
     
64,781
      A
 
   
131,674
 
Intangible assets, net
   
17,229
     
1,735
     
138,265
     
A
 
   
157,229
 
Long-term investments
   
3,060
     
     
             
3,060
 
Deferred income taxes
   
53,140
     
     
             
53,140
 
Other assets
   
8,766
     
     
             
8,766
 
Total assets
 
$
302,583
   
$
19,524
   
$
152,946
           
$
475,053
 
                                         
Liabilities and Stockholder’s Equity
                                       
Current liabilities:
                                       
Accounts payable and accrued
                                       
expenses
 
$
29,132
   
$
6,961
   
$
1,486
      B
 
 
$
37,579
 
Deferred revenue
   
2,326
     
874
     
184
      B
 
   
3,384
 
Debt, short-term
   
     
     
4,125
      A
 
   
4,125
 
Contingent consideration
   
42,512
     
     
             
42,512
 
Total current liabilities
   
73,970
     
7,835
     
5,795
             
87,600
 
Accrued lease liabilities, long term
   
     
323
     
22
      B
 
   
345
 
Deferred income taxes, long term
   
     
117
     
(117
)
    C
 
   
 
Debt, long-term, net of debt issue costs
   
     
     
158,495
      A
 
   
158,495
 
Total liabilities
   
73,970
     
8,275
     
164,195
             
246,440
 
Commitments and contingencies
                                       
Stockholders’ equity:
                                       
Common stock
   
52
     
     
             
52
 
Additional paid-in capital
   
705,798
     
     
             
705,798
 
Treasury stock
   
(172,410
)
   
     
             
(172,410
)
Accumulated deficit
   
(304,873
)
   
     
             
(304,873
)
Parent’s equity
   
     
11,249
     
(11,249
)
    A
 
   
 
Accumulated other comprehensive income
   
46
     
     
             
46
 
Total stockholders’ equity
   
228,613
     
9,115
     
(9,115
)
           
228,613
 
Total liabilities and stockholders’ equity
 
$
302,583
   
$
19,524
   
$
152,946
           
$
475,053
 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial information.
 

STAMPS.COM INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands, except per share data)

   
SDC
(Historical)
   
Endicia
(Historical)
   
Pro forma
Adjustments
   
Pro forma
Combined
 
                     
Revenue
 
$
144,081
   
$
48,194
   
$
(154
)
    D
 
 
$
192,121
 
Cost of revenue (exclusive of amortization of intangible assets, which is included in general and administrative expense)
   
30,752
     
10,972
     
(25
)
    D
 
   
41,699
 
Gross profit
   
113,329
     
37,222
     
(129
)
           
150,422
 
Operating expenses:
                                       
Sales and marketing
   
37,898
     
19,472
     
(129
)
    D
 
   
57,241
 
Research and development
   
13,720
     
7,009
     
             
20,729
 
General and administrative
   
30,004
     
7,192
     
11,102
     
F,G
 
   
48,298
 
Contingent consideration charge
   
26,027
     
     
             
26,027
 
Litigation settlement
   
10,000
     
     
             
10,000
 
Total operating expenses
   
117,649
     
33,673
     
10,973
             
162,295
 
Income from operations
   
(4,320
)
   
3,549
     
(11,102
)
           
(11,873
)
                                         
Interest and other income, net
   
103
     
     
(31
)
    H
 
   
72
 
Interest and other expense, net
   
     
(77
)
   
(2,525
)
    I
 
   
(2,602
)
Income before income taxes
   
(4,217
)
   
3,472
     
(13,658
)
           
(14,403
)
Income tax expense (benefit)
   
(90
)
   
1,677
     
(6,146
)
    C
 
   
(4,559
)
Net income (loss)
 
$
(4,127
)
 
$
1,795
   
$
(7,512
)
         
$
(9,844
)
Net loss per share
                                       
Basic
 
$
(0.25
)
 
$
   
$
           
$
(0.60
)
Diluted
 
$
(0.25
)
 
$
   
$
           
$
(0.60
)
Weighted average shares outstanding
                                       
Basic
   
16,367
     
     
             
16,367
 
Diluted
   
16,367
(1) 
   
     
             
16,367
(1) 

(1) Common equivalent shares are excluded from the diluted (loss) earnings per share calculation as their effect is anti-dilutive

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial information.
 

STAMPS.COM INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2014
(In thousands, except per share data)

   
SDC
(Historical)
   
Endicia
(Historical)
   
Pro forma
Adjustments
   
Pro forma
Combined
 
                     
Revenue
 
$
147,269
   
$
58,513
   
$
(1,153
)
   
D,E
 
 
$
204,629
 
Cost of revenue (exclusive of amortization of intangible assets, which is included in general and administrative expense)
   
32,906
     
13,477
     
(38
)
    D
 
   
46,345
 
Gross profit
   
114,363
     
45,036
     
(1,115
)
           
158,284
 
Operating expenses:
                                       
Sales and marketing
   
43,659
     
22,959
     
(115
)
    D
 
   
66,503
 
Research and development
   
13,309
     
8,306
     
             
21,615
 
General and administrative
   
25,147
     
7,715
     
18,975
     
E, F,G
 
   
51,837
 
Contingent consideration charge
   
8,438
     
     
             
8,438
 
Total operating expenses
   
90,553
     
38,980
     
18,860
             
148,393
 
Income from operations
   
23,810
     
6,056
     
(19,975
)
           
9,891
 
                                         
Interest and other income, net
   
375
     
     
(42
)
    H
 
   
333
 
Interest and other expense, net
   
     
(93
)
   
(3,453
)
    I
 
   
(3,546
)
Income before income taxes
   
24,185
     
5,963
     
(23,470
)
           
6,678
 
Income tax expense (benefit)
   
(12,697
)
   
2,862
     
(10,562
)
    C
 
   
(20,397
)
Net income
 
$
36,882
   
$
3,101
   
$
(12,908
)
         
$
(27,075
)
Net income per share
                                       
Basic
 
$
2.30
   
$
   
$
           
$
1.69
 
Diluted
 
$
2.25
   
$
   
$
           
$
1.65
 
Weighted average shares outstanding
                                       
Basic
   
16,011
     
     
             
16,011
 
Diluted
   
16,417
     
     
             
16,417
 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial information.
 

STAMPS.COM INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

Description of the Transaction and Basis of Presentation

The unaudited pro forma condensed combined financial statements have been prepared based on SDC’s and Endicia’s historical financial information, giving effect to the acquisition and related adjustments described in these notes. SDC prepares its consolidated financial statements in accordance with US generally accepted accounting principles (“U.S. GAAP”). Certain note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the Securities and Exchange Commission rules and regulations.

On November 18, 2015, SDC acquired 100% of the issued and outstanding shares of common stock of Endicia from a wholly-owned indirect subsidiary of Newell Rubbermaid, Inc. (“Newell”) in a cash transaction.  Endicia, based in Mountain View, California, is the leading provider of high volume shipping technologies and solutions for use with the U.S. Postal Service and other postal partners. It offers solutions that help businesses run their shipping operations more smoothly and function more successfully. Endicia also provides seamless access to USPS shipping services through integration with more than 250 partner applications.

We have accounted for the acquisition under the acquisition method of accounting in accordance with the provisions of FASB ASC Topic No. 805 Business Combinations (ASC 805). The total purchase price for Endicia, net of cash assumed, was approximately $215 million. We funded the acquisition cost, including customary purchase adjustments, such as adjustments to net working capital as of the acquisition date, and the related closing costs, with approximately $165 million in bank debt from a group of leading US banks and the remainder from our existing cash and investments.

Under the acquisition method of accounting under ASC 805, the total estimated purchase price of the acquired company is allocated to the assets acquired and the liabilities assumed based on their fair values. We have made significant estimates and assumptions in determining the preliminary allocation of the purchase price. The preliminary allocation of purchase consideration is subject to change based on further review of the fair value of the assets acquired and liabilities assumed. The following table is the estimated allocation of the purchase price (in thousands, except years):
                                     
   
Fair Value
   
Weighted Average
Estimated Useful Life
(In Years)
 
Cash and cash equivalents
 
$
5,584
     
Trade accounts receivable
   
10,105
     
Other assets
   
1,065
     
Property and equipment
   
3,315
     
Goodwill
   
64,781
     
Total identifiable intangible assets
   
140,000
     
7
 
Accrued expenses and other liabilities
   
(8,792
)
       
Deferred revenue
   
(1,058
)
       
Total purchase price
 
$
215,000
         

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma condensed combined balance sheet statements of operations. The final purchase price allocation will be determined when SDC has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include changes in allocations to intangible assets such as intellectual property and customer relationships as well as goodwill and other changes to assets and liabilities.  Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in a business combination and the potential synergy of combining the operations of Stamps.com and Endicia.  We expect the entire amount of goodwill recorded in this acquisition will be deducted for tax purposes ratably over a 15 year period.  The identified intangible assets consist of intellectual property, developed technology, and customer relationships.  The estimated fair values of the intangible assets were determined using methodologies such as “Relief from Royalty” and “Excess Earnings.”  Intangible assets will be assumed to be amortized on a straight-line basis over their estimated useful lives.  We expect the amortization of acquired intangibles will be approximately $5 million per quarter for the remaining estimated useful lives.

Pro Forma Adjustments

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the acquisition of Endicia. The historical financial statements have been adjusted in the unaudited pro forma combined financial information to give effect to the pro forma events that are directly attributable to the acquisition, factually supportable and expect to have a continuing impact on the combined results of SDC and Endicia. Furthermore, no effect has been given in the unaudited pro forma combined statements of operations for potential synergistic benefits or cost savings that may be realized through the combination of SDC and Endicia or costs that may be incurred in integrating SDC and Endicia.

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet and statements of operations are as follows:
                                     
(A) The purchase price of Endicia was $215 million in cash. The allocation of the purchase price and the purchase price accounting is based upon preliminary estimates of the assets and liabilities acquired on November 18, 2015 in accordance with the provisions of ASC 805.

The purchase price paid for the acquisition is as follows (in thousands):

Cash paid, net of cash acquired
 
$
50,510
 
Short term debt
   
4,125
 
Long term debt
   
160,365
 
Total purchase price
 
$
215,000
 

Long-term debt is presented net of debt issue costs of $1,870 on the September 30, 2015 pro forma condensed combined balance sheet.
                                   
The allocation of the purchase price is estimated as follows (in thousands):

   
Fair Value
 
Total working capital
 
$
6,904
 
Property and equipment
   
3,315
 
Goodwill
   
64,781
 
Total identifiable intangible assets
   
140,000
 
Total purchase price
 
$
215,000
 

(B) The following table reflects the working capital adjustments based on the purchase price allocation as of the acquisition date as shown in Description of the Transaction and Basis of Presentation note (in thousands).

   
Endicia
Historical
   
Net Adjustment
   
Preliminary
Value
 
Cash and cash equivalents
 
$
7,955
   
$
(2,371
)
 
$
5,584
 
Accounts receivable
   
2,629
     
7,476
     
-10,105
 
Other current assets
   
1,340
     
(275
)
   
1,065
 
Property and equipment
   
3,192
     
123
     
3,315
 
Accrued expenses and other liabilities
   
6,960
     
1,487
     
8,447
 
Deferred revenue
   
874
     
184
     
1,058
 
Accrued lease liabilities
   
323
     
22
     
345
 
 

(C) Adjustments to remove Endicia’s deferred income tax assets and liabilities and to reflect the income tax effect of the pro forma adjustments based on the estimated blended federal and state statutory tax rate of 45%.

(D) Adjustments to eliminate SDC revenue recognized from Endicia and the related sales and marketing expense of Endicia of approximately $129,000 and $115,000 during the nine months ended September 30, 2015 and year ended December 31, 2014, respectively, and to eliminate Endicia revenue recognized from SDC and related cost of revenue of SDC of approximately $25,000 and $38,000 during the nine months ended September 30, 2015 and year ended December 31, 2014, respectively.

(E) Adjustment to eliminate legal settlement income of approximately $1 million that was recorded by Endicia and legal settlement expense of $1 million that was recorded by SDC in the fourth quarter of 2014.

(F) Adjustment to record pro forma amortization expense of purchased intangible assets from the beginning of the period presented over their estimated useful life (in thousands except years):

       
Weighted
   
Pro Forma Amortization
Expense
 
   
Fair Value
   
Average
Estimated
Useful Life
(years)
   
Nine Months
Ended
September
30, 2015
   
Year
Ended
December
31, 2014
 
Total identifiable intangible assets
 
$
140,000
   
7
   
$
15,000
   
$
20,000
 

These preliminary estimates of fair value and estimated useful lives will likely differ from final amounts SDC will calculate after completing a detailed valuation analysis, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill and annual amortization expense of approximately $2 million, assuming an overall weighted-average useful life of 7 years.

(G)
Adjustment to eliminate the acquisition and integration related corporate development and legal expenses of approximately $3.9 million and $25,000 that was recorded by SDC for the nine months ended September 30, 2015 and year ended December 31,  2014, respectively in general and administrative expense.

(H) Adjustment to eliminate interest income of approximately $30,000 and $40,000 for the nine months ended September 30, 2015 and year ended December 31, 2014, respectively, from SDC’s statements of operations for cash used in the acquisition and not available for investment during the period.

(I) Adjustment to reflect loan interest expense and amortization of debt issue costs of approximately $2.5 million and $3.5 million for the nine months ended September 30, 2015 and year ended December 31, 2014, respectively, from SDC’s statements of operations at an annual rate of 1.87%. A change in the interest rate of 0.125% would cause a corresponding increase or decrease of approximately $207,000 in annual interest expense.