Earthlink 2007 Annual Report Download - page 48

Stock
-
Based Compensation
Prior to January 1, 2006, we accounted for stock-based compensation issued to employees using the intrinsic value method. Generally, no
stock-based employee compensation cost related to stock options was reflected in net income, as all options granted under stock-based
compensation plans had an exercise price equal to the market value of the underlying common stock on the grant date. Compensation cost
related to restricted stock units granted to non-employee directors and certain key employees was reflected in net income as services were
rendered.
On January 1, 2006, we adopted SFAS No. 123(R), which requires measurement of compensation cost for all stock awards at fair value on
the date of grant and recognition of compensation over the requisite service period for awards expected to vest. The fair value of our stock
options is estimated using the Black-Scholes valuation model, and the fair value of restricted stock units is determined based on the number of
shares granted and the quoted price of our common stock on the date of grant. Such value is recognized as expense over the requisite service
period, net of estimated forfeitures, using the straight-line attribution method. The estimate of awards that will ultimately vest requires
significant judgment, and to the extent actual results or updated estimates differ from management's current estimates, such amounts will be
recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures,
including types of awards, employee class and historical employee attrition rates. Actual results, and future changes in estimates, may differ
substantially from our current estimates.
We adopted SFAS 123(R) using the modified prospective method which requires the application of the accounting standard as of January 1,
2006. Our consolidated financial statements for the years ended December 31, 2006 and 2007 reflect the impact of SFAS 123(R). In accordance
with the modified prospective method, the consolidated financial statements for the prior years have not been restated to reflect, and do not
include, the impact of SFAS 123(R). The cumulative effect of adoption of SFAS No. 123(R) was not material. Stock-based compensation
expense under SFAS No. 123(R) was $14.2 million and $19.6 million during the years ended December 31, 2006 and 2007, respectively. Stock-
based compensation during the years ended December 31, 2006 and 2007 is classified within the same operating expense line items as cash
compensation paid to employees. Stock-based compensation expense was $1.5 million during the year ended December 31, 2005, which related
to restricted stock units and modifications of stock options.
Facility Exit and Restructuring Costs
2007 Plan. We expect to incur future cash outflows for real estate obligations through 2014 related to the 2007 Plan. The following table
summarizes activity for the liability balances associated with the 2007 Plan for the year ended December 31, 2007, including changes during the
year attributable to costs incurred and charged to expense and costs paid or otherwise settled:
Legacy Plans. As of December 31, 2007, we had $5.0 million remaining for real estate commitments associated with the Legacy Plans.
All other costs have been paid or otherwise settled. We expect to incur future cash outflows for real estate obligations through 2010 related to the
Legacy Plans.
43
Severance
and Benefits
Facilities
Asset
Impairments
Other
Costs
Total
(in thousands)
Balance as of December 31, 2006
$
—
$
—
$
—
$
—
$
—
Accruals
30,303
12,216
20,621
1,131
64,271
Payments
(18,262
)
(480
)
—
(
760
)
(19,502
)
Non
-
cash charges
—
4,388
(20,621
)
(371
)
(16,604
)
Balance as of December 31, 2007
$
12,041
$
16,124
$
—
$
—
$
28,165