Classmates.com 2006 Annual Report Download - page 94

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Stock Options
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, consistent with the
provisions of SFAS No. 123R and SAB No. 107. Because option-pricing models require the use of subjective assumptions, changes in these
assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted average of
the applicable assumption used to value stock options at their grant date. The Company calculates expected volatility based on historical
volatility of the Company’s common stock. The expected term, which represents the period of time that options granted are expected to be
outstanding, is estimated based on historical exercise experience. The Company evaluated historical exercise behavior when determining the
expected term assumptions. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of
grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual
dividend by the market price of United Online common stock at the date of grant.
The following table summarizes activity during the years ended December 31, 2004, 2005 and 2006:
Total unrecognized compensation cost related to unvested stock options at December 31, 2006, prior to the consideration of expected
forfeitures, is approximately $3.5 million and is expected to be recognized over a weighted-average period of 1.0 years.
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2006, 2005 and 2004 was $4.51,
$7.08 and $13.75, respectively. The total intrinsic value of
F- 32
Year Ended
December 31,
2006
2005
2004
Risk
-
free interest rate
4.6
%
4.2
%
3.3
%
Expected life (in years)
3.8
5.0
5.0
Dividend yield
6.1
%
2.3
%
0.0
%
Volatility
60.0
%
91.6
%
103.0
%
Options
Outstanding
Weighted
-
Average
Exercise
Price
Weighted
-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
(in years)
(in thousands)
Outstanding at January 1, 2004
13,207
$
10.83
Assumed in connection with acquisition
540
5.09
Granted
1,818
17.83
Exercised
(1,856
)
3.24
Cancelled
(479
)
14.37
Outstanding at December 31,2004
13,230
12.50
Granted
2,541
11.20
Exercised
(2,374
)
2.47
Cancelled
(1,769
)
18.71
Outstanding at December 31, 2005
11,628
13.31
Granted
210
13.18
Exercised
(2,163
)
4.37
Cancelled
(2,566
)
23.46
Outstanding at December 31, 2006
7,109
$
12.37
6.50
$
23,182
Exercisable at December 31, 2006
5,775
$
12.56
6.05
$
20,689