Classmates.com 2006 Annual Report Download - page 45

Communications General and Administrative Expenses. Communications general and administrative expenses increased by $3.6 million,
or 26%, to $17.2 million for the year ended December 31, 2005, compared to $13.6 million for the year ended December 31, 2004. The increase
was due to a $1.0 million increase in recruiting and relocation expenses, a $0.9 million increase in compensation costs, a $0.9 million increase in
consulting fees and a $0.8 million increase in facilities and other overhead-related expenses.
Content & Media General and Administrative Expenses. Content & Media general and administrative expenses increased by $8.5 million
to $10.3 million for the year ended December 31, 2005, compared to $1.8 million for the year ended December 31, 2004. The increase was
primarily due to a $5.2 million increase in compensation costs and a $3.1 million increase in facilities and other overhead-related expenses
associated with the acquisition of Classmates in the December 2004 quarter.
Unallocated Corporate Expenses. Excluding stock-based compensation and depreciation, unallocated corporate general and
administrative expenses decreased by $2.7 million, or 13%, to $18.0 million for the year ended December 31, 2005, compared to $20.7 million
for the year ended December 31, 2004. The decrease was the result of $3.3 million in facility-exit costs recognized in the year ended
December 31, 2004 and a $0.2 million decrease in facilities and other overhead-related expenses, offset by a $0.5 million increase in consulting
fees and a $0.3 million increase in compensation costs.
Amortization of Intangible Assets
At December 31, 2005, we had approximately $59.3 million in net identifiable intangible assets resulting primarily from the acquisitions of
Classmates, BlueLight Internet assets and the Web-hosting and photo-sharing services. At December 31, 2005, we had approximately
$80.5 million in goodwill resulting from the acquisitions of Classmates and the Web-hosting and photo-sharing services. 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 more likely than not
reduce the fair value of a reporting unit below its carrying value amount. We determined that our goodwill and long-lived assets were not
impaired based on our annual test during the years ended December 31, 2005 and 2004.
Amortization of intangible assets increased by $1.4 million, or 7%, to $21.8 million for the year ended December 31, 2005, compared to
$20.4 million for the year ended December 31, 2004. The increases are due to the amortization of identifiable intangible assets from our
acquisitions of Classmates and the photo-sharing service, offset partially by a decrease in amortization of intangible assets from the Merger. We
recorded a reduction in the remaining intangible assets from the Merger of approximately $11.2 million during the December 2004 quarter in
connection with the release of the deferred tax valuation allowance. In addition, the increase was related to the amortization of identifiable
intangible assets throughout 2005 from the acquisition of our Web-hosting services in April 2004. Certain of the acquired intangible assets are
amortized on an accelerated basis to better match the expense to the expected cash flows from those assets.
Interest and Other Income, Net
Interest and other income, net increased by $1.7 million, or 34%, to $6.9 million for the year ended December 31, 2005, compared to
$5.1 million for the year ended December 31, 2004 as a result of higher interest rates and higher average balances on our cash and cash
equivalents and short-term investments. Net realized gains on our short-term investments were not significant for the year ended December 31,
2005. Net realized gains on our short-term investments were approximately $0.1 million for the year ended December 31, 2004.
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