Classmates.com 2008 Annual Report Download - page 113

Table of Contents
UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
including branding and customer acquisition campaigns consisting of television, Internet, sponsorships, radio, print, and outdoor advertising, and
on retail and other performance-based distribution relationships. Marketing and advertising costs to promote the Company's products and
services are expensed in the period incurred. Advertising and promotion expenses include media, agency and promotion expenses. Media
production costs are expensed the first time the advertisement is run. Media and agency costs are expensed over the period the advertising runs.
Advertising and promotion expense for the years ended December 31, 2008, 2007 and 2006 was $102.7 million, $99.5 million and
$117.7 million, respectively. At December 31, 2008 and 2007, $3.5 million and $1.3 million, respectively, of prepaid advertising and promotion
expense was included in other current assets in the consolidated balance sheets.
Technology and Development —
Technology and development expenses include expenses for product development, maintenance of existing
software and technology and the development of new or improved software and technology, including personnel-related expenses for the
technology departments and the costs associated with operating the Company's facility in India. Costs incurred by the Company to manage and
monitor the Company's technology and development activities are expensed as incurred. Costs relating to the acquisition and development of
internal-use software are capitalized and depreciated over their estimated useful lives, generally three years.
Software Development Costs —The Company accounts for costs incurred to develop software for internal use in accordance with SOP 98-
1,
Accounting for Costs of Computer Software Developed or Obtained for Internal Use
, which requires such costs be capitalized and amortized
over the estimated useful life of the software. The Company capitalizes costs associated with customized internal-use software systems that have
reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the
applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such
costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for
its intended purpose. The Company capitalized costs associated with internal-use software of $7.0 million and $8.4 million in the years ended
December 31, 2008 and 2007, respectively, which are being depreciated on a straight-line basis over each project's estimated useful life which is
generally three years. Capitalized internal-use software is included within the computer software and equipment category within property and
equipment, net, in the consolidated balance sheets.
Software to be Sold, Leased or Marketed —The Company follows the provisions of SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed . SFAS No. 86 requires that all costs relating to the purchase or internal development and
production of computer software products to be sold, leased or otherwise marketed be expensed in the period incurred unless the requirements
for technological feasibility have been established. The Company capitalizes all eligible computer software costs incurred once technological
feasibility is established. The Company amortizes these costs using the greater of the straight-line method over a period of three to five years or
the revenue method prescribed by SFAS No. 86. At December 31, 2008, the net book value of capitalized computer software costs related to the
internal development and production of computer software to be sold, leased or otherwise marketed was $14.0 million. During the year ended
December 31, 2008, $0.9 million was charged to expense related to the amortization of these capitalized computer software costs.
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