Classmates.com 2003 Annual Report Download - page 20

Sales and Marketing
Sales and marketing expenses increased by $46.4 million, or 115%, to $86.6 million for the year ended June 30, 2003, compared to
$40.2 million for the year ended June 30, 2002. The increase was attributable to a $42.3 million increase in marketing and promotion costs. The
increase in marketing and promotion costs was a result of the utilization of expanded marketing initiatives that focus on increasing our pay
subscriber base and building our brands. Additionally, sales and marketing expenses increased as a result of a $4.8 million increase in
telemarketing expenses related to customer acquisition and retention activities and a $0.5 million increase in personnel and overhead-related
expenses due to increased headcount and compensation costs in our sales and marketing department. These increases were partially offset by a
$0.7 million decrease in costs directly associated with our former RocketCash subsidiary, which was sold in August 2001, and a $0.5 million
decrease in stock-based charges.
Product Development
Product development expenses decreased by $1.7 million, or 7%, to $23.1 million for the year ended June 30, 2003, compared to
$24.8 million for the year ended June 30, 2002. The decrease was due to a $1.8 million decrease in stock-
based charges, a $1.6 million decrease
in depreciation expense and a $1.1 million decrease in costs directly associated with our former RocketCash and Simpli subsidiaries, which
were sold during the year ended June 30, 2002. Stock-based charges allocated to product development decreased as a result of the sale of our
Simpli subsidiary and the accelerated vesting of certain previously issued stock options and restricted stock awards. Depreciation expense
allocated to product development decreased as a result of assets placed in service in prior years becoming fully depreciated and significantly
lower levels of capital expenditures in recent years versus prior years. These decreases were partially offset by a $2.7 million net increase in
personnel and overhead-related expenses primarily as a result of increased headcount and compensation costs.
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General and Administrative
General and administrative expenses decreased by $2.9 million, or 9%, to $27.8 million for the year ended June 30, 2003, compared to
$30.7 million for the year ended June 30, 2002. The decrease in general and administrative expenses was primarily the result of a $3.9 million
decrease in stock-based charges as a result of the accelerated vesting of certain previously issued stock options and restricted stock awards in
the year ended June 30, 2002, a $0.9 million decrease in costs directly associated with our former RocketCash and Simpli subsidiaries, a
$0.9 million decrease in occupancy-related costs and a $0.7 million credit as a result of a favorable settlement of a contractual dispute. These
decreases were partially offset by a $1.6 million increase in legal settlement related costs, a $1.2 million increase in personnel-related expenses
as a result of higher compensation costs and a $0.8 million increase in insurance costs.
Amortization of Intangible Assets
Amortization of intangible assets increased by $2.3 million, or 16%, to $16.4 million for the year ended June 30, 2003, compared to
$14.2 million for the year ended June 30, 2002 primarily as a result of the additional amortization expense incurred in connection with the
intangible assets acquired from BlueLight in November 2002.
Restructuring Charges
Restructuring charges consist of employee severance costs, contract termination fees, lease exit costs and the write off of leasehold
improvements associated with terminated leases.
During the year ended June 30, 2003, we recorded a $0.2 million credit to restructuring charges as a result of contract termination fees
expensed in earlier periods that were in excess of final negotiated amounts. During the year ended June 30, 2002, we recorded $4.2 million of
restructuring charges, which consisted of $0.8 million in employee termination benefits, $0.5 million for early contract termination fees and
$2.9 million in lease exit costs, which includes a charge of approximately $1.4 million to write off leasehold improvements associated with our
former offices in New York and Rhode Island.
In an effort to streamline our operations in response to changing market conditions, we reduced our workforce by 101 employees during
the year ended June 30, 2002. Of the 101 employees terminated, 43 were in sales and marketing, 26 were in general and administrative, 23
were in product development, 6 were at RocketCash and 3 were in network operations. In addition, we closed regional offices in San Francisco,
California and Providence, Rhode Island and combined our New York offices into one facility.
At June 30, 2003, all amounts recorded in prior years for restructuring charges were paid, and we do not anticipate any additional
restructuring charges in the near term.
Interest Income, Net