Stamps.com 2004 Annual Report Download - page 29

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Net cash provided by investing activities was $59.3 million for the year ended December 31, 2004. Net
cash used by investing activities was $32.8 million for the year ended December 31, 2003. The decrease in net cash
used in investing activities resulted primarily from the sale of investments to fund the return of capital cash dividend
in February 2004.
Net cash used in financing activities was $76.0 million and $1.9 million for the years ended December 31,
2004 and 2003, respectively. The increase in net cash used in financing activities resulted primarily from the return
of capital cash dividend paid in February 2004.
We believe our available cash and marketable securities, together with the cash flow from operations will
be sufficient to fund our business for the foreseeable future.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standard Board (“FASB”) issued FASB Interpretation No.
(“FIN”) 46, “Consolidation of Variable Interest Entities”, which was originally effective on July 1, 2003. In
December 2003, the FASB deferred the effective date for applying the provisions of FIN 46 to March 31, 2004 for
interests held by public companies in variable interest entities or potential variable entities created before February
1, 2003. We have completed our evaluation of the provisions of FIN 46 and we do not have any significant interests
in variable interest entities. Accordingly, the adoption of FIN 46 did not have a material impact on our financial
position or the results of operations.
In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and equity. The adoption of this
statement did not have a material impact on our financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43
Chapter 4”. This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and spoilage, requiring these items to be recognized as current period charges. In addition, this statement
requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of
the production facilities. The provisions of this statement are effective for inventory costs incurred during the fiscal
years beginning after June 15, 2005. The adoption of this statement is not expected to have a significant impact on
our financial position or results of operations.
In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment,
which is a revision of FASB statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R)
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is
no longer an alternative. Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be
permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R)
on July 1, 2005.
Statement 123(R) permits public companies to adopt its requirements using one of two methods:
1. A “modified prospective” method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of Statement 123 for all awards granted to
employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.
2. A “modified retrospective” method which includes the requirements of the modified prospective
method described above, but also permits entities to restate based on the amounts previously
recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods
presented or (b) prior interim periods of the year of adoption.
We plan to adopt Statement 123(R) using the modified-prospective method. As permitted by Statement
123, we currently account for share-based payments to employees using Opinion 25’ s intrinsic value method and, as
such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of Statement
123(R)’ s fair value method will have a significant impact on our result of operations, although it will have no impact
on our overall financial position. We estimate the adoption of Statement 123(R) may result in an increase to
operating expenses in the amount of $1.4 million for the year ended December 31, 2005. However, this estimate