Stamps.com 2007 Annual Report Download - page 46

the amount of benefit to recognize in the financial statements.
The adoption of FIN 48 did not have a material effect on our financial statements. We have concluded that there are no
significant uncertain tax positions requiring recognition in our financial statements.
Our policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of
income tax expense. As of December 31, 2007, we have not recorded any interest and penalty expense.
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TABLE OF CONTENTS
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
Our determination on the analysis of uncertain tax positions are related to tax years that remain subject to examination by the
relevant tax authorities. These include the 2004 through 2006 tax years for federal purposes and the 2003 through 2006 tax years
for California purposes.
The provision for income taxes consists solely of alternative minimum federal and state taxes. Our effective income tax rate
differs from the statutory income tax rate primarily as a result of the establishment of a valuation allowance for the future
benefits to be received from the deferred tax assets including net operating loss carryforwards and research tax credits
carryforwards to offset taxable income. We recorded a tax provision subject to the corporate alternative minimum federal and
state taxes of approximately $387,000, $164,000 and $246,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.
Stock-Based Compensation
Until December 31, 2005, we accounted for stock-based awards to employees and directors using the intrinsic value method
in accordance with Accounting Principles Board (APB) Opinion No. 25 as allowed under Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). Effective January 1, 2006, we adopted the
Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R), and related SEC
rules included in Staff Accounting Bulletin No. 107 (SAB 107), using the modified prospective transition method. Under that
transition method, our stock-based compensation expense includes (1) compensation expense for share-based payment awards
granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value estimated in accordance with the pro
forma provisions of SFAS 123 and (2) compensation expense for the share-based payment awards granted or modified
subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.
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 value of that portion of share-based
payment awards that is ultimately expected to vest during the period, reduced for estimated forfeitures. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. In our pro forma information required under SFAS 123 for the periods prior to fiscal 2006, we accounted for
forfeitures as they occurred. Compensation expense recognized for all employee stock options wards granted is recognized using
the straight-line single method over their respective vesting periods of three to four years.
The following table sets forth the stock-based compensation expense that we recognized under SFAS 123R for the periods
indicated (in thousands):
2007 2006
Stock-based compensation expense relating to:
Employee and director stock options $
2,623
$
1,828
Employee stock purchases
84
810
Total stock-based compensation expense $
2,707
$
2,638
Stock-based compensation expense relating to: