Stamps.com 2005 Annual Report Download - page 51

STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Net Income (Loss) per Share
Net income (loss) per share represents net income (loss) attributable to common stockholders divided by the weighted average number of
common shares outstanding during a reported period. The diluted net income (loss) per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock, including convertible preferred stock and stock options and warrants (commonly and
hereinafter referred to as “common stock equivalents”), were exercised or converted into common stock. Diluted net income (loss) per share is
calculated by dividing net income (loss) during a reported period by the sum of the weighted average number of common shares outstanding
plus common stock equivalents for the period. The following table reconciles income and share amounts utilized to calculate basic and diluted
net income (loss) per share (in thousands, except per share data):
The calculation of dilutive shares excludes the effect of the following options that are considered anti-dilutive (in thousands):
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. Under this method, deferred
tax liabilities and assets are determined based on the difference between the financial statements and the tax basis of assets and liabilities using
the enacted tax rate in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not a tax benefit will not be realized.
Stock
-Based Compensation
The Company accounts for its employee stock plan under the intrinsic value method prescribed by APB No. 25, “Accounting for Stock
Issued to Employees”, and related interpretations, and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-
Based Compensation” and as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an
amendment of FASB Statement No. 123”.
SFAS No. 123, and 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 income (loss) and pro forma net income (loss) per
F-10
Year Ended December 31,
2005 2004 2003
Net income (loss)
$
10,429
$
(4,733
)
$
(9,327
)
Basic – weighted average common shares
22,738
22,361
22,056
Dilutive effect of common stock equivalents
1,006
— —
Diluted – weighted average common shares
23,744
22,361
22,056
Earnings per share:
Basic
$
0.46
$
(0.21
)
$
(0.42
)
Diluted
$
0.44
$
(0.21
)
$
(0.42
)
Year Ended December 31,
2005 2004 2003
Anti-dilutive stock options shares
526
3,208
2,286