Overstock.com 2002 Annual Report Download - page 40

based method prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, had been applied
(Note 15). The following table provides a reconciliation of net loss to pro forma net loss as if the fair value method had been applied to all awards.
Year ended December 31,
2000 2001 2002
Net loss, as reported $(21,312) $(13,806) $(4,560)
Add: Stock-based employee compensation expense included in reported net income net of related tax effects — 727 3,276
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net
of related tax effects (214) (1,057) (4,404)
Pro forma net loss $(21,526) $(14,136) $(5,688)
Net loss per common share
Basic and diluted—as reported $ (3.63) $ (1.29) $ (0.88)
Basic and diluted—pro forma $ (3.67) $ (1.32) $ (0.97)
The weighted average grant-date fair value of options granted during 2000, 2001 and 2002 was $4.01, $5.97 and $8.21 per share, respectively, and was
estimated using the assumptions discussed in Note 15.
Stock-based awards to non-employees are accounted for under the provisions of FAS 123 and Emerging Issues Task Force Issue 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Earnings (loss) per share
Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share assumes the exercise of all options and warrants which are dilutive, whether exercisable or not.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods indicated:
Year ended December 31,
2000 2001 2002
Net loss attributable to common shares $(21,522) $(14,210) $(11,573)
Weighted average common shares outstanding—basic 5,922 10,998 13,108
Effective of dilutive securities:
Warrants — — —
Employee stock options — — —
Weighted average common shares outstanding—diluted 5,922 10,998 13,108
Earnings (loss) per common share—basic: $ (3.63) $ (1.29) $ (0.88)
Earnings (loss) per common share—diluted: $ (3.63) $ (1.29) $ (0.88)
The average shares of stock options and warrants outstanding were not included in the computation of diluted earnings per share because to do so would
have been antidilutive. However, the number of shares of stock options and warrants outstanding at each year-end was 1,537 shares, 2,283 shares and 2,535
shares for 2000, 2001 and 2002, respectively, of which 114 shares, 977 shares and 1,211 shares would have been included in the calculation of diluted
earnings (loss) per share if the effect had been dilutive.
Internal use software
The Company expenses all costs incurred for the development of internal use software that relate to the planning and post implementation phases of the
development. Direct costs incurred in the development phase are capitalized and recognized over the software's estimated useful life of 3 years. Software costs
capitalized were $81 and $0 in 2001 and 2002, respectively. Research and development costs and other computer software maintenance costs related to
software development are expensed as incurred.
Advertising expense
The Company recognizes advertising expenses in accordance with SOP 93-7 Reporting on Advertising Costs. As such, the Company expenses the costs
of producing advertisements at the time production occurs, and expenses the cost of communicating advertising in the period during which the advertising
space or airtime is used. Internet advertising expenses are recognized based on the terms of the individual agreements, which is generally: 1) during the period
customers are acquired; or 2) based on the number of clicks generated during a given period over the term of the contract. Advertising expenses totaled
$10,752, $4,802 and $7,043 during the years ended December 31, 2000, 2001 and 2002, respectively.
Recently issued accounting pronouncements
The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121 and
requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens
the presentation of discontinued operations to include more disposal transactions. The adoption of this standard did not have a significant effect on the
Company's financial statements.