Stamps.com 2007 Annual Report Download - page 47

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Sales and marketing
495
336
Research and development
617
799
General and administrative
1,304
1,178
Total stock-based compensation expense $
2,707
$
2,638
F-45
TABLE OF CONTENTS
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
The following table illustrates the reported and pro forma effect on net income and earnings per share if we had elected to
apply the fair value recognition provisions of SFAS 123 for 2005 (in thousands, except per share data):
In our SFAS 123R calculations, we use the Black-Scholes option valuation model, which requires us to make a number of
highly complex and subjective assumptions, including stock price volatility, expected term, risk-free interest rates and actual and
projected employee stock option exercise behaviors. For options granted, our assumption of expected volatility was based on the
historical volatility of our stock price for the period January 1, 2002 through the date of option grant. We base the risk-free
interest rate on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant.
The estimated expected life represents the weighted-average period the stock options are expected to remain outstanding and has
been determined based on an analysis of historical exercise behavior.
The following are the weighted average assumptions used in the Black-Scholes valuation model for the periods indicated:
2005
Net income as reported
$
10,429
Add: Stock price based employee expense included in net income
—
Deduct: Total stock-
based employee compensation expense determined under fair value
based method for all awards, net of related tax effects
(1,332
)
Net income pro forma
$
9,097
Basic net income per common share – as reported
$
0.46
Diluted net income per common share – as reported
$
0.44
Basic net income per common share – pro forma
$
0.40
Diluted net income per common share – pro forma
$
0.38
The following table summarizes stock option activity related to our plan for 2007:
2007
2006
2005
Expected dividend yield
—
—
—
Risk-free interest rate
4.45
%
4.74
%
4.11
%
Expected volatility
48
%
49
%
48
%
Expected life (in years)
5
5
5
Expected forfeiture rate
16
%
15
% —
Number of
Stock Options
(in Thousands)
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
(in Years)
Aggregate
Intrinsic
Value
(in Thousands)
Outstanding at December 31, 2006
2,197
$
17.52