Classmates.com 2009 Annual Report Download - page 73

Table of Contents
December 31, 2008 and $0.3 million of imputed interest on the acquired member redemption liability of our online loyalty marketing service
recorded in the year ended December 31, 2007. These decreases were offset by an increase in foreign currency exchange rate losses and an
increase in losses on disposal of assets.
Provision for Income Taxes. For the year ended December 31, 2008, we recorded a tax provision of $23.3 million on a pre-tax loss of
$71.4 million. The tax provision reflects the impact of non-deductible goodwill and impairment charges of $176.2 million. Excluding these
charges, the effective income tax rate for the year ended December 31, 2008 would have been 43.5%. For the year ended December 31, 2007, we
recorded a tax provision of $40.9 million on pre-tax income of $98.7 million, resulting in an effective income tax rate of 41.5%. The increase in
our effective income tax rate, excluding the impact of the impairment charges, was primarily due to (1) an increase in nondeductible executive
compensation expense; (2) a lower amount of tax-free interest income; and (3) a net increase in the reserve for uncertain tax positions primarily
due to state law changes. These increases were partially offset by (1) a lower state income tax rate, net of federal income tax benefit and (2) the
release of the deferred tax valuation allowance attributable to the utilization of certain foreign net operating losses.
Classmates Media Segment Results
The following table presents the Classmates Media segment's results of operations as a percentage of Classmates Media revenues for the
years ended December 31, 2008 and 2007.
Classmates Media Revenues. Classmates Media revenues increased by $36.8 million, or 19.0%, to $230.2 million for the year ended
December 31, 2008, compared to $193.4 million for the year ended December 31, 2007. The increase in Classmates Media revenues was
primarily due to a $32.9 million increase in services revenues as a result of a 40% increase in our average number of pay accounts from
2.7 million for the year ended December 31, 2007 to 3.8 million for the year ended December 31, 2008, partially offset by a 7% decrease in
ARPU from $3.31 for the year ended December 31, 2007 to $3.09 for the year ended December 31, 2008. The decrease in ARPU was primarily
attributable to limited-time promotional subscription offerings in the fourth quarter of 2007, which negatively impacted ARPU in the year ended
December 31, 2008 compared to the prior-year and, to a lesser extent, a greater percentage of pay accounts represented by international online
social networking pay accounts which have lower-priced subscription plans compared to U.S. online social networking pay accounts. The
increase in Classmates Media revenues was also due to a $3.9 million increase in advertising revenues as a result of increased advertising
revenues associated with our online loyalty marketing and international online social networking services, partially offset by decreased
advertising revenues associated with post-transaction sales.
70
Year Ended
December 31,
2008 2007
Revenues
100.0
%
100.0
%
Operating expenses:
Cost of revenues
17.9
20.4
Sales and marketing
35.6
40.8
Technology and development
9.5
8.3
General and administrative
16.5
15.9
Restructuring charges
—
—
Total operating expenses
79.5
85.4
Segment income from operations
20.5
%
14.6
%