Stamps.com 2010 Annual Report Download - page 69

TABLE OF CONTENTS
STAMPS.COM INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies – (continued)
that deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax
assets will not be realized. We record a valuation allowance to reduce our gross deferred tax assets, which are primarily
comprised of US Federal and State tax loss carryforwards, to the amount that is more likely than not (a likelihood of more than
50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable
income. We evaluate the appropriateness of our deferred tax assets and related valuation allowance in accordance with ASC 740
based on all available positive and negative evidence.
Net Income per Share
Net income per share represents net income attributable to common stockholders divided by the weighted average number of
common shares outstanding during a reported period. The diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock, including stock options, were exercised or converted into common
stock. Diluted net income per share is calculated by dividing net income 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
share amounts utilized to calculate basic and diluted net income 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):
Year Ended December 31,
2010 2009 2008
Net income
$
5,532
$
6,177
$
10,164
Basic – weighted average common shares
14,529
16,238
19,081
Dilutive effect of common stock equivalents
156
131
264
Diluted – weighted average common shares
14,685
16,369
19,345
Net income per share:
Basic
$
0.38
$
0.38
$
0.53
Diluted
$
0.38
$
0.38
$
0.53
Stock-Based Compensation
We estimate the fair value of share-based payment awards on the date of grant using an option-pricing model and recognize
stock-based compensation expense during each period based on the value of that portion of share-based payment awards that is
ultimately expected to vest during the period, reduced for estimated forfeitures. We estimate forfeitures at the time of grant based
on historical data and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation
expense recognized for all employee stock options granted is recognized using the straight-line method over their respective
vesting periods of three to five years.
During the fourth quarter of 2010, in connection with our special dividend of $2.00 per share, in order to prevent that
dividend from diluting or enlarging the rights of the holders of outstanding stock options and purchase rights under certain of our
employee plans, including our equity plans, we reduced the exercise price of affected options and rights in a manner that is both
value neutral and that did not result in the incurrence of any incremental stock-based compensation expense. Because the
exercise price could not be adjusted in this manner without adverse tax consequences for certain option grants, we made value
neutral cash payments
Year Ended December 31,
2010 2009 2008
Anti-dilutive stock option shares
1,928
2,677
2,642
F-10