Enom 2011 Annual Report Download - page 51

General and Administrative
General and administrative expenses consist primarily of personnel costs from our executive, legal, finance, human resources and information
technology organizations and facilities related expenditures, as well as third-party professional fees, insurance and bad debt expenses. Professional fees are
largely comprised of outside legal, audit and information technology consulting. During the year ended December 31, 2010 and 2011, our allowance for
doubtful accounts and bad debt expense were not significant and we expect that this trend will continue in the near term. However, as we grow our revenue
from direct advertising sales, which tend to have longer collection cycles, our allowance for doubtful accounts may increase, which may lead to increased bad
debt expense. As we continue to expand our business and incur additional expenses associated with being a publicly traded company, we anticipate general
and administrative expenses will increase in the near term, but at a lesser rate than our projected revenue growth. Specifically, we expect that we will incur
additional general and administrative expenses to provide insurance for our directors and officers and to comply with the regulatory and listing exchange
requirements.
Amortization of Intangibles
We capitalize certain costs allocated to the purchase price of certain identifiable intangible assets acquired in connection with business combinations, to
acquire content that our models show embody probable economic benefit, and to acquire undeveloped websites, including initial registration costs. We
amortize these costs on a straight-line basis over the related expected useful lives of these assets, which have a weighted average useful life of approximately
5.3 years on a combined basis as of December 31, 2011. We estimate our capitalized content to have a weighted average useful life of 5.1 years as of
December 31, 2011. The Company determines the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on its
historical experience of intangible assets of similar quality and value. We expect amortization expense to decrease in the near term as we intend to reduce our
investment in content intangible assets as compared to the prior year. Amortization as percentage of revenue will depend upon a variety of factors, such as the
amounts and mix of our investments in content and identifiable intangible assets acquired in business combinations.
Stock-based Compensation
Included in our operating expenses are expenses associated with stock-based compensation, which are allocated and included in service costs, sales and
marketing, product development and general and administrative expenses. Stock-based compensation expense is largely comprised of costs associated with
stock options and restricted stock units granted to employees, restricted stock issued to employees and expenses relating to our Employee Stock Purchase
Plan.
We record the fair value of these equity-based awards and expense their cost ratably over related vesting periods. In addition, stock-based compensation
expense includes the cost of warrants to purchase common and preferred stock issued to certain non-employees. In addition, during the first quarter of 2011,
we recognized approximately $5.0 million in additional stock-based compensation related to awards granted to certain executive officers in prior years to
acquire approximately 2.6 million of our shares that vested in that quarter upon meeting an average closing price of our stock for a stipulated period of time
subsequent to our initial public offering.
As of December 31, 2011, we had approximately $80.7 million of unrecognized employee related stock-based compensation, net of estimated
forfeitures, that we expect to recognize over a weighted average period of approximately 3.2 years. Stock-based compensation expense is expected to
increase in 2012 compared to 2011 as a result of our existing unrecognized stock-based compensation and as we issue additional stock-based awards to
continue to attract and retain employees and non-employee directors.
Interest Expense
Interest expense principally consists of interest on outstanding debt and amortization of debt issuance costs associated with our revolving credit facility.
As of December 31, 2011 no principal balance was outstanding under the revolving credit facility.
Interest Income
Interest income consists of interest earned on cash balances and short-term investments. We typically invest our available cash balances in money market
funds and short-term United States Treasury obligations.
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