Overstock.com 2007 Annual Report Download - page 124

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Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
17. STOCK BASED AWARDS (Continued)
from stock-based compensation deductions in excess of amounts reported for financial reporting purposes.
On March 29, 2005, the SEC published SAB 107, which provides the Staff's views on a variety of matters relating to stock-based payments. SAB 107
requires stock-based compensation be classified in the same expense line items as cash compensation. The Company has reclassified stock-based
compensation from prior periods to correspond to current period presentation within the same operating expense line items as cash compensation paid to
employees.
The application of SFAS 123(R) had the following effect on the year ended December 31, 2006 reported amounts relative to amounts that would have
been reported using the intrinsic value method under previous accounting (in thousands, except per share amounts):
Year ended December 31,
2006
Operating loss $ (4,120)
Net loss $ (4,120)
Net loss per common share—basic and diluted $ (0.20)
Valuation Assumptions for Stock Options
During the twelve months ended December 31, 2006 and 2007, total stock options granted to employees were 182,500 and 762,000 respectively, with
estimated total grant-date fair values of $2.4 million and $8.1 million, respectively. The Company estimates that the stock-based compensation for the awards
not expected to vest during the years ended December 31, 2006 and 2007 was $643,000 and $2.4 million, respectively. During the years ended December 31,
2006 and 2007, the Company recorded stock-based compensation related to stock options of $4.1 million and $4.5 million, respectively.
The fair value for each stock option granted during the twelve months ended December 31, 2005, 2006 and 2007 was estimated at the date of grant using
the BSM option-pricing model, assuming no dividends and the following assumptions.
Years ended December 31,
2005 2006 2007
Average risk-free interest rate 4.44% 4.77% 4.75%
Average expected life (in years) 3.7 3.5 6.3
Volatility 73.3% 65.1% 68.5%
Expected Volatility: The fair value of stock based payments were valued using a volatility factor based on the Company's historical stock prices.
Expected Term: For 2005 and 2006 option grants, the Company's expected term represents the period that the Company's stock-based awards are
expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms and
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