Stamps.com 2005 Annual Report Download - page 33

During fiscal year 2005, we repurchased approximately 139,000 shares of common stock for $2.3 million. We will consider repurchasing
stock throughout our current repurchase program by evaluating such factors as the price of the stock, the daily trading volume and the
availability of large blocks of stock and any additional constraints related to material inside information we may possess.
Net cash provided by operating activities was $15.0 million and $3.4 million for the years ended December 31, 2005 and 2004,
respectively. The increase in net cash provided by operating activities resulted primarily from the increase in revenues and expanding gross
margins.
Net cash used in investing activities was $9.9 million for the year ended December 31, 2005. Net cash provided by investing activities was
$59.3 million for the year ended December 31, 2004. The decrease in net cash provided by investing activities resulted primarily from the sale
of investments to fund the return of capital cash dividend in February 2004. In addition, we purchased additional investments as we continued
to increase operating cash flow in fiscal 2005.
Net cash provided by financing activities was $9.6 million for the year ended December 31, 2005.
Net cash used in financing activities was
$76.0 million for the year ended December 31, 2004. The increase in net cash provided by financing activities resulted primarily from the
proceeds from the exercise of our stock options and issuance of stock under our employee stock purchase program. In addition, we paid a
return of capital cash dividend of approximately $78 million in February 2004.
We believe our available cash and marketable securities, together with the cash flow from operations will be sufficient to fund our business
for the foreseeable future.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (Statement 123(R)), which is a revision of
SFAS No. 123, “Accounting for Stock-Based Compensation” (Statement 123). Statement 123(R) supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees”, and amends FASB Statement No. 95, “Statement of Cash Flows”. Generally, the approach in
Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. Statement 123(R) must be adopted in the registrant’s first fiscal year beginning on or after June 15, 2005.
We expect to adopt Statement 123(R) on January 1, 2006.
Statement 123(R) permits public companies to adopt its requirements using one of two methods:
• A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the
requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the
effective date.
• A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also
permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures
either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
We plan to adopt Statement 123(R) using the modified prospective method. As permitted by Statement 123(R), during the fiscal periods
presented herein, we accounted for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such,
generally recognized no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method
will have a significant impact on our result of operations, although it will have no impact on our overall financial position. We estimate the
adoption of Statement 123(R) may result in an increase to operating expenses in the amount of approximately $3.0 million for the year ended
December 31, 2006. However, this estimate 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
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