Classmates.com 2005 Annual Report Download - page 52

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December 31, 2002. Depreciation expense allocated to free access services has decreased due to assets placed in service in prior years becoming
fully depreciated, significantly lower levels of capital expenditures in recent years versus prior years and a decrease in free access accounts as a
percentage of total active access accounts. Telecommunications hours allocated to our free access account base decreased to approximately 10%
of total telecommunications hours purchased during the six months ended December 31, 2003, compared to approximately 16% during the six
months ended December 31, 2002.
Sales and Marketing
Sales and marketing expenses increased by $34.0 million, or 93%, to $70.5 million for the six months ended December 31, 2003, compared
to $36.5 million for the six months ended December 31, 2002. The increase was primarily attributable to a $29.9 million increase in marketing
and promotion costs as a result of an expansion in marketing activities that focus on increasing our pay account base, promoting our accelerated
dial-up services and building our brands. Additionally, sales and marketing expenses increased as a result of a $4.4 million increase in
telemarketing expenses related to customer acquisition, retention and up sell activities. The increases were partially offset by a $0.2 million
decrease in overhead-related costs.
Product Development
Product development expenses decreased by $1.2 million, or 10%, to $10.5 million for the six months ended December 31, 2003, compared
to $11.7 million for the six months ended December 31, 2002. The decrease was primarily the result of a $2.1 million decrease in depreciation,
partially offset by a $0.7 million increase in personnel-related expenses as a result of increased headcount and compensation costs and a
$0.2 million increase in overhead-related costs. 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.
General and Administrative
General and administrative expenses increased by $1.3 million, or 10%, to $14.0 million for the six months ended December 31, 2003,
compared to $12.7 million for the six months ended December 31, 2002. The increase in general and administrative expenses was primarily the
result of a $1.2 million increase in personnel-related expenses as a result of higher compensation costs, a $0.5 million increase in consulting and
professional services and a $0.3 million net increase in legal settlement expenses, including the recognition of a $0.7 million credit as a result of
a one-time favorable settlement of a contractual dispute in the September 2002 quarter. These increases were partially offset by a $0.6 million
decrease in overhead- related costs.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $0.6 million, or 7%, to $7.9 million for the six months ended December 31, 2003, compared
to $8.5 million for the six months ended December 31, 2002 primarily as a result of certain acquired intangible assets from the Merger being
fully amortized at September 30, 2002, partially offset by an increase in amortization expense incurred in connection with the intangible assets
acquired from BlueLight in November 2002.
During the six months ended December 31, 2003, based upon our assessment of all available evidence, we released a portion of our
deferred tax asset valuation allowance. The release of valuation allowance during the period ended December 31, 2003 in part related to the
realization of a benefit for certain acquired deferred tax assets, which resulted in a decrease in a portion of goodwill recorded in connection with
the Merger.
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