Classmates.com 2006 Annual Report Download - page 39

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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.
Consolidated Product Development Expenses. Consolidated product development expenses increased by $12.9 million, or 32%, to $52.9
million for the year ended December 31, 2006, compared to $40.0 million for the year ended December 31, 2005. The increase was attributable
to increases in expenses in the Content & Media segment and, to a lesser extent, increases in expenses in the Communications segment, as well
as a $4.3 million increase in stock-based compensation in connection with the adoption of SFAS No. 123R in the March 2006 quarter and a $2.0
million increase in depreciation. Product development expenses related to our Communications segment and our Content & Media segment
constituted 68.9% and 31.1%, respectively, of total segment product development expenses for the year ended December 31, 2006, compared to
78.7% and 21.3%, respectively, for the year ended December 31, 2005.
Communications Product Development Expenses. Communications product development expenses increased by $1.1 million, or 4%, to
$29.3 million for the year ended December 31, 2006, compared to $28.2 million for the year ended December 31, 2005. The increase was the
result of a $0.4 million increase in overhead-related costs, a $0.3 million increase in personnel-related expenses and $0.3 million in restructuring
charges recorded in the September 2006 quarter for severance costs associated with the relocation of Juno’s New York office to New Jersey.
Capitalized compensation costs were $7.3 million and $4.0 million in the years ended December 31, 2006 and 2005, respectively. The increase
in capitalized compensation costs was due to projects associated with an upgrade to our customer billing system, projects adding new features
and functionality to our VoIP products and the preparation of our software for the anticipated release of Microsoft’s newest operating system.
The increase was partially offset by capitalized compensation costs in 2005 related to the development of our VoIP services.
Content & Media Product Development Expenses. Content & Media product development expenses increased by $5.6 million, or 73%, to
$13.2 million for the year ended December 31, 2006, compared to $7.6 million for the year ended December 31, 2005. The increase was
primarily due to a $5.1 million increase in personnel-related expenses due to increased headcount related to our social-networking services and
increased headcount associated with the acquisition of our loyalty marketing service in April 2006.
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.
Consolidated General and Administrative Expenses. Consolidated general and administrative expenses increased by $11.0 million, or
19%, to $67.7 million for the year ended December 31, 2006, compared to $56.7 million for the year ended December 31, 2005. The increase
was due to increases in the Content & Media and Communications segments and unallocated corporate expenses, a $3.0 million increase in
depreciation and a $1.8 million increase in stock-based compensation in connection with the adoption of SFAS No. 123R in the March 2006
quarter. General and administrative expenses related to our Communications segment and our Content & Media segment constituted 57.4% and
42.6%, respectively, of total segment general and administrative expenses for the year ended December 31, 2006, compared to 62.4% and
37.6%, respectively, for the year ended December 31, 2005.
Communications General and Administrative Expenses. Communications general and administrative expenses increased by $1.9 million,
or 11%, to $19.0 million for the year ended December 31, 2006,
38