Classmates.com 2008 Annual Report Download - page 114

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)
General and Administrative —General and administrative expenses include personnel-
related expenses for executive, finance, legal, human
resources, facilities, and internal customer support personnel. In addition, general and administrative expenses include, among other costs,
professional fees for legal, accounting and financial services; office relocation costs; non-income taxes; insurance; occupancy and other
overhead-related costs; and expenses incurred and credits received as a result of certain legal settlements.
Stock-Based Compensation —On January 1, 2006, the Company adopted SFAS No. 123R (revised 2004), Share-Based Payment , which
requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors
including employee stock options, stock awards and employee stock purchases related to the Company's employee stock purchase plan based on
the grant-date fair values of the awards.
The Company adopted SFAS No. 123R using the modified prospective transition method, and the Company's consolidated financial
statements at December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 reflect the impact of SFAS No. 123R.
Stock-based compensation recognized under SFAS No. 123R for the years ended December 31, 2008, 2007 and 2006 was $36.5 million,
$19.5 million and $19.2 million, respectively, which was primarily related to restricted stock, stock options and the discount on purchases related
to the Company's employee stock purchase plan.
SFAS No. 123R requires companies to estimate the fair value of share-based payment awards on the grant date using an option-pricing
model. The Company uses the Black-Scholes option-pricing model for valuing share-based payment awards. The value of the portion of the
award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements
of operations.
SFAS No. 123R requires forfeitures to be estimated at the time of grant in order to calculate the amount of share-based payment awards
ultimately expected to vest. The forfeiture rate is based on historical rates. Stock-based compensation recognized in the Company's consolidated
statements of operations for the years ended December 31, 2008, 2007 and 2006 includes (i) compensation expense for share-based payment
awards granted prior to or on, but not yet vested at, December 31, 2005 based on the grant-date fair value estimated in accordance with the pro
forma provisions of SFAS No. 123 and (ii) compensation expense for share-based payment awards granted subsequent to December 31, 2005,
based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. As stock-based compensation recognized in
the consolidated statements of operations for the years ended December 31, 2008, 2007 and 2006 is based on equity awards ultimately expected
to vest, it has been reduced for estimated forfeitures. For the periods prior to 2006, the Company accounted for forfeitures as they occurred.
Accordingly, a pre-tax cumulative effect of accounting change adjustment totaling $1.1 million ($1.0 million, net of tax) was recorded in the
March 2006 quarter to adjust for share-based payment awards granted prior to January 1, 2006 that are not ultimately expected to vest.
In November 2005, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. SFAS 123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards . The alternative transition method includes
simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of
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