Classmates.com 2006 Annual Report Download - page 40

compared to $17.2 million for the year ended December 31, 2005. The increase was due to a $1.9 million increase in compensation costs, a
$0.4 million increase in overhead-related costs and $0.2 million in restructuring charges recorded in the September 2006 quarter for severance
and move costs associated with the relocation of Juno’s New York office to New Jersey. These increases were partially offset by a $0.5 million
decrease in recruiting and relocation expenses and a $0.2 million decrease in consulting fees.
Content & Media General and Administrative Expenses.
Content & Media general and administrative expenses increased by $3.8 million,
or 37%, to $14.1 million for the year ended December 31, 2006, compared to $10.3 million for the year ended December 31, 2005. The increase
was primarily due to increases in compensation costs, facilities and other overhead-related costs related to our loyalty marketing service which
was acquired in April 2006.
Unallocated Corporate Expenses. Excluding stock-based compensation and depreciation, unallocated corporate general and
administrative expenses increased by $0.6 million, or 3%, to $18.6 million for the year ended December 31, 2006, compared to $18.0 million for
the year ended December 31, 2005. The increase was primarily due to an increase in overhead-related costs, legal reserves and consulting fees,
partially offset by a decrease in compensation costs.
Amortization of Intangible Assets
Amortization of intangible assets includes amortization of acquired pay accounts and free accounts, acquired trademarks and trade names,
purchased technologies and other identifiable intangible assets. In accordance with the provisions set forth in SFAS No. 142, Goodwill and
Other Intangible Assets , goodwill is not being amortized but is tested for impairment at a reporting unit level on an annual basis and between
annual tests if an event occurs or circumstances change that would indicate the fair value of a reporting unit below its carrying value amount.
Consolidated amortization of intangible assets decreased by $4.2 million, or 19%, to $17.6 million for the year ended December 31, 2006,
compared to $21.8 million for the year ended December 31, 2005. The decrease was primarily attributable to the accelerated amortization of
intangible assets in 2005 associated with the Classmates acquisition in November 2004, partially offset by increased amortization related to
intangible assets acquired in connection with the acquisitions of The Names Database in the March 2006 quarter and MyPoints in the June 2006
quarter.
Impairment of Goodwill, Intangible Assets and Long-Lived Assets
Under SFAS No. 142, goodwill and other indefinite-lived intangibles must be tested for impairment annually or when events and
circumstances change that would more likely than not indicate that goodwill might be permanently impaired. In the December 2006 quarter, we
tested goodwill for impairment and recorded a goodwill impairment charge of $5.7 million and an intangible assets impairment charge of
$3.0 million related to our photo-sharing service within the Content & Media segment. The $3.0
million intangible assets impairment charge was
comprised of $2.9 million of acquired software technology and $0.1 million of acquired pay accounts, proprietary rights and domain names. We
determined the amount of the charge based on an estimate of the fair value of the photo-sharing assets, using the income approach, discounted
cash flow method.
Under SFAS No. 144, long-
lived assets, other than indefinite life intangible assets, must be tested for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. In the December 2006 quarter, we recognized asset
impairment charges of $4.5 million attributable to certain assets of our VoIP services within the Communications segment. As a result of slower
than expected growth of the VoIP market in the United States, current period operating losses and projected continuing operating losses, we
evaluated the recoverability of certain assets and wrote off $4.3 million of capitalized software and $0.2 million of prepaid marketing and
domain names. We were
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