Stamps.com 2005 Annual Report Download - page 52

STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
share disclosures for stock-based awards made during the year as if the fair value method defined in SFAS No. 123, as amended, had been
applied. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 (in thousands, except per share data):
Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
For options granted during the years ended December 31, 2005, 2004 and 2003, the Company’s assumption of expected volatility for
valuing options using the Black-Scholes model was based on the historical volatility of the Company’s stock price for the period January 1,
2002 through the date of option grant because management believes the historical volatility since January 1, 2002 is more representative of
prospective volatility.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion the
existing models do not necessarily provide a reliable single measure of the fair value of the Company’s options.
Treasury Stock
The Company repurchased approximately 139,000 shares of common stock for $2.3 million during the year ended December 31, 2005.
There were no shares repurchased during the year ended December 31, 2004. The Company will consider repurchasing stock throughout the
current repurchase program by evaluating such factors as the price of the stock, the daily trading volume and the availability of large blocks of
shares and any additional constraints because of material inside information the Company may possess.
Segment Information
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” establishes standards of reporting information
regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim
financial reports issued to stockholders. The Company operates in a single segment.
F-11
2005 2004 2003
Net income (loss) – as reported
$
10,429
$
(4,733
)
$
(9,327
)
Add: Stock price based employee expense included in net income (loss) —
3,076
9
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards
(1,332
)
(7,884
)
(2,938
)
Net income (loss) – pro forma
$
9,097
$
(9,541
)
$
(12,256
)
Basic net income (loss) per common share – as reported
$
0.46
$
(0.21
)
$
(0.42
)
Diluted net income (loss) per common share – as reported
$
0.44
$
(0.21
)
$
(0.42
)
Basic net income (loss) per common share – pro forma
$
0.40
$
(0.43
)
$
(0.56
)
Diluted net income (loss) per common share – pro forma
$
0.38
$
(0.43
)
$
(0.56
)
2005 2004 2003
Expected dividend yield —
— —
Risk-free interest rate
4.11
%
3.43
%
3.00
%
Expected volatility
48
%
48
%
30
%
Expected life (in years)
5
5
5