Classmates.com 2007 Annual Report Download - page 63

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projects associated with an upgrade to our customer billing system, projects adding new features and functionality to our VoIP products and the
preparation of our software for the anticipated release of Microsoft's newest operating system. The increase was partially offset by capitalized
compensation costs in 2005 related to the development of our VoIP services.
General and Administrative
Consolidated General and Administrative Expenses. Consolidated general and administrative expenses increased by $10.8 million, or
19%, to $67.5 million for the year ended December 31, 2006, compared to $56.7 million for the year ended December 31, 2005. The increase
was due to increases in the Classmates Media and Communications segments and a $3.3 million increase in depreciation. General and
administrative expenses related to our Classmates Media segment and our Communications segment constituted 35.1% and 64.9%, respectively,
of total segment general and administrative expenses for the year ended December 31, 2006, compared to 28.5% and 71.5%, respectively, for the
year ended December 31, 2005.
Classmates Media General and Administrative Expenses. Classmates Media general and administrative expenses increased by
$6.2 million, or 41%, to $21.3 million, or 15.3% of Classmates Media revenues, for the year ended December 31, 2006, compared to
$15.2 million, or 17.9% of Classmates Media revenues, for the year ended December 31, 2005. The increase was primarily due to $4.8 million of
compensation costs, professional fees, facilities costs, and other overhead-related costs associated with our loyalty marketing service which we
acquired in April 2006, a $1.3 million increase in professional fees, facilities costs and other overhead-related costs associated with our social
networking services, and a $0.9 million increase in stock-based compensation in connection with the adoption of SFAS No. 123R in the quarter
ended March 31, 2006. These increases were partially offset by a $0.9 million decrease in compensation costs associated with our social
networking services.
Communications General and Administrative Expenses. Communications general and administrative expenses increased by $1.3 million,
or 3%, to $39.4 million, or 10.3% of Communications revenues, for the year ended December 31, 2006, compared to $38.1 million, or 8.7% of
Communications revenues, for the year ended December 31, 2005. The increase was due to a $1.1 million increase in compensation costs and a
$0.9 million increase in stock-based compensation in connection with the adoption of SFAS No. 123R in the quarter ended March 31, 2006.
These increases were partially offset by a $0.6 million decrease in professional fees.
Amortization of Intangible Assets
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 in
2005 of intangible assets associated with our acquisition of Classmates in November 2004, partially offset by increased amortization related to
intangible assets acquired in connection with our acquisitions of The Names Database in March 2006 and MyPoints in April 2006.
Impairment of Goodwill, Intangible Assets and Long-Lived Assets
Under SFAS No. 142, goodwill and other indefinite-lived intangible assets 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 Communications 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
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