Stamps.com 2003 Annual Report Download - page 49

Table of Contents
STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SFAS No. 123 as amended by SFAS No. 148 permits companies to recognize, as expense over the vesting period, the fair value of all stock-
based awards on the date of grant. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. Because the Company’s stock-based compensation plans have
characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect
the fair value estimate, management believes that the existing option valuation models do not necessarily provide a reliable single measure of
the fair value of awards from the plan. Therefore, as permitted, the Company applies the existing accounting rules under APB No. 25 and
provides pro forma net loss and pro forma loss per 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. Net loss and net loss per share for each of the three years ended December 31, 2003
would have increased to the following pro forma amounts (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:
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.
Website Development Costs
The Company develops and maintains its website. Costs associated with the operation of the website consist primarily of software and
hardware purchased from third parties, which are capitalized by the Company. These capitalized costs are amortized based on their estimated
useful life. Costs related to maintenance are not capitalized. Costs related to the development of website content are expensed as incurred.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations” and SFAS No. 142,
“Goodwill and Other Intangible Assets”. SFAS No. 141 requires business
F-10
2003 2002 2001
Net loss
-
as reported
$
(9,327
)
$
(6,847
)
$
(209,573
)
Add: Stock price based employee expense included in net loss
9
305
11,328
Deduct: Total stock-
based employee compensation expense determined under fair value
based method for all awards
(2,034
)
(2,651
)
(13,510
)
Net loss
-
pro forma
$
(11,352
)
$
(9,193
)
$
(211,755
)
Basic and diluted net loss per common share
-
as reported
$
(0.21
)
$
(0.14
)
$
(4.14
)
Basic and diluted net loss per common share
-
pro forma
$
(0.26
)
$
(0.19
)
$
(4.18
)
2003 2002 2001
Expected dividend yield
—
—
—
Risk
-
free interest rate
3.00
%
2.61
%
5.00
%
Expected volatility
30
%
30
%
100
%
Expected life (in years)
5
5
5