Earthlink 2006 Annual Report Download - page 49

Operations and customer support expenses increased 12% from $233.9 million during the year ended December 31, 2005 to $260.9
million during the year ended December 31, 2006. The increase was primarily the result of the inclusion of New Edge operations and customer
support expenses, expenses associated with our municipal wireless broadband growth initiative, an increase in operations expense for our
value-added services and an increase due to stock-based compensation expense from the adoption of SFAS No. 123(R) on January 1, 2006.
Operations and customer support expenses for the year ended December 31, 2006 included $6.5 million of stock-based compensation expense.
Partially offsetting these increases was a decrease in operations and customer support expenses for our premium narrowband services,
including a decrease in communications costs for providing subscribers with toll-free access to our technical support and customer service
centers.
General and administrative
General and administrative expenses consist of fully burdened costs associated with the executive, finance, legal and human resources
departments; outside professional services; payment processing; credit card fees; collections and bad debt. General and administrative expenses
increased 7% to $112.2 million and 15% to $128.5 million during the years ended December 31, 2005 and 2006, respectively, compared to the
prior years. The increase during the year ended December 31, 2005 was primarily due to an increase in legal fees, increased professional and
investment advisor fees resulting from the formation of the HELIO joint venture in March 2005 and certain state sales tax refunds received
during 2004. These increases were partially offset by decreases in bad debt and payment processing expenses and depreciation expense.
The increase during the year ended December 31, 2006 was primarily due to the inclusion of New Edge general and administrative
expenses; increases in personnel, professional fees and travel costs resulting from the implementation of our various growth initiatives; and an
increase due to stock-based compensation expense from the adoption of SFAS No. 123(R) on January 1, 2006. General and administrative
expenses for the year ended December 31, 2006 included $4.4 million of stock-based compensation expense.
Amortization of intangible assets
Amortization of intangible assets represents the amortization of definite lived intangible assets acquired in purchases of businesses and
purchases of customer bases from other companies. Definite lived intangible assets, which primarily consist of subscriber bases and customer
relationships, acquired software and technology and other assets, are amortized on a straight-line basis over their estimated useful lives, which
range from one to six years. Amortization of intangible assets decreased 50% from $24.4 million during the year ended December 31, 2004 to
$12.3 million during the year ended December 31, 2005 and decreased 3% to $11.9 million during the year ended December 31, 2006. The
decreases were primarily the result of several subscriber base assets becoming fully amortized over the past three years and a decrease in
subscriber base acquisitions in recent years. Additionally, contributing to the decrease during the year ended December 31, 2005 was the
subscriber base acquired in the Cidco Incorporated (“Cidco”) transaction becoming fully amortized in November 2004. Offsetting the decrease
during the year ended December 31, 2006 was an increase due to amortization of identifiable definite lived intangible assets resulting from the
acquisition of New Edge.
Facility exit and restructuring costs
2004 costs. During the first quarter of 2004, we executed a plan to restructure and further streamline our contact center operations (the
“2004 Plan”). Under the 2004 Plan, we closed contact center operations in Harrisburg, Pennsylvania; Roseville, California; San Jose,
California; and Pasadena, California; and reduced contact center operations in Atlanta, Georgia. Approximately 1,140 employees were directly
impacted, primarily customer support personnel. In connection with the 2004 Plan, we recorded facility
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