Classmates.com 2005 Annual Report Download - page 44

Download and view the complete annual report

Please find page 44 of the 2005 Classmates.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

Product Development
Product development expenses include expenses for the maintenance of existing software and technology and the development of new or
improved software and technology, including personnel-related expenses for the software engineering department and the costs associated with
operating our facility in India. Costs incurred by us to manage, monitor and operate our services are generally expensed as incurred, except for
certain costs relating to the acquisition and development of internal-use software, which are capitalized and depreciated over their estimated
useful lives, generally three years or less.
Product development expenses increased by $12.6 million, or 46%, to $40.0 million for the year ended December 31, 2005, compared to
$27.5 million for the year ended December 31, 2004. The increase was primarily the result of increased personnel-related expenses for our
social-networking and Web-hosting businesses which we acquired during 2004, including a $7.8 million increase in compensation costs.
Additionally, headcount and compensation costs increased as a result of increased personnel related to the development of new products during
2005, including our enhanced accelerator service and our VoIP telephony service. The increase was also the result of a $2.0 million increase in
depreciation; a $1.0 million increase in stock-based compensation related to the issuance of RSUs beginning in the March 2005 quarter; a $0.5
million increase in license fees; and a $0.4 million increase in professional and consulting fees. We anticipate that we will continue to increase
our product development expenses, both in dollar terms and as a percentage of revenues in 2006. Product development expenses were reduced
by capitalized compensation costs of approximately $4.2 million during the year ended December 31, 2005, compared to approximately $0.2
million for the year ended December 31, 2004. The majority of the capitalized compensation costs in the year ended December 31, 2005 related
to the development of our VoIP telephony service and the new version of our accelerator service. Product development expenses could increase
as a percentage of revenues in 2006 as a result of a number of factors, including increased compensation expense recognized in connection with
the adoption of SFAS No. 123R, commencing in the March 2006 quarter.
General and Administrative
General and administrative expenses include personnel-related expenses for executive, finance, legal, human resources and internal
customer support personnel. In addition, general and administrative expenses include fees for professional legal, accounting and financial
services, office relocation costs, non-income taxes, insurance, and occupancy and other overhead-related costs, as well as the expenses incurred
and credits received as a result of certain legal settlements.
General and administrative expenses increased by $16.8 million, or 42%, to $56.7 million for the year ended December 31, 2005, compared
to $39.9 million for the year ended December 31, 2004 primarily due to increases in expenses attributable to our social-networking business,
which we acquired in November 2004, and a $5.4 million increase in stock-based compensation primarily related to RSUs issued beginning in
March 2005. We incurred a $6.4 million increase in personnel-related expenses as a result of higher compensation costs; a $2.9 million increase
in professional and consulting fees; a $2.8 million increase in overhead-related costs, including an increase of $2.0 million in depreciation; and a
$1.9 million increase in facilities costs as a result of increased rent for our corporate headquarters and facilities related to our Web-hosting and
social-networking businesses. These increases were partially offset by the incurrence of $3.3 million in lease termination fees, accelerated
depreciation and other facility-exit costs in the year ended December 31, 2004 in connection with the relocation of our corporate offices in
August 2004. General and administrative expenses could increase as a percentage of revenues in 2006 as a result of a number of factors,
including increased compensation expense recognized in connection with the adoption of SFAS No. 123R, commencing in the March 2006
quarter.
43