Classmates.com 2006 Annual Report Download - page 44

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Communications Sales and Marketing Expenses. Communications sales and marketing expenses decreased by $12.6 million, or 7%, to
$162.0 million, or 37.5% of Communications revenues, for the year ended December 31, 2005, compared to $174.6 million, or 40.2% of
Communications revenues, for the year ended December 31, 2004. This decrease is attributable to a $16.3 million decline in advertising,
promotion and distribution costs related to our access services, the majority of which was due to reductions in media and other advertising costs,
and a $1.8 million decrease in personnel and overhead-related expenses. These decreases were partially offset by a $3.6 million increase in VoIP
marketing expenses.
Content & Media Sales and Marketing Expenses. Content & Media sales and marketing expenses increased by $42.1 million to $46.1
million, or 49.5% of Content & Media revenues, for the year ended December 31, 2005, compared to $4.0 million, or 28.2% of Content & Media
revenues, for the year ended December 31, 2004. The increase is primarily due to a $30.2 million increase in expenses related to promoting our
Classmates social-networking service and a $10.5 million increase in personnel and overhead-related costs associated with the acquisition of our
Classmates social-networking service in the December 2004 quarter.
Product Development
Consolidated Product Development Expenses. Consolidated 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
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 $2.0 million increase in depreciation and a $1.0 million increase in stock-based compensation in connection with the
issuance of RSUs during 2005. Product development expenses related to our Communications segment and our Content & Media segment
constituted 78.7% and 21.3%, respectively, of total segment product development expenses for the year ended December 31, 2005, compared to
95.7% and 4.3%, respectively, for the year ended December 31, 2004.
Communications Product Development Expenses. Communications product development expenses increased by $3.0 million, or 12%, to
$28.2 million for the year ended December 31, 2005, compared to $25.2 million for the year ended December 31, 2004. The increase was due to
a $1.8 million increase in compensation costs and a $1.2 million increase in overhead-related costs. Capitalized compensation costs were $4.0
million and $0.2 million in the years ended December 31, 2005 and 2004, respectively. The majority of the capitalized compensation costs in the
year ended December 31, 2005 related to the development of our VoIP service and the new version of our accelerator service.
Content & Media Product Development Expenses. Content & Media product development expenses increased by $6.5 million to $7.6
million for the year ended December 31, 2005, compared to $1.1 million for the year ended December 31, 2004. The increase was primarily due
to an increase in compensation costs associated with the acquisition of Classmates in the December 2004 quarter.
General and Administrative
Consolidated General and Administrative Expenses. Consolidated 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. The increase
was primarily due to increases in expenses in the Content & Media segment and, to a lesser extent, increases in expenses in the Communications
segment, partially offset by a decrease in unallocated corporate expenses. Additionally, the increase was due to a $5.4 million increase in stock-
based compensation in connection with the issuance of RSUs during 2005 and a $1.9 million increase in depreciation. General and
administrative expenses related to our Communications segment and our Content & Media segment constituted 62.4% and 37.6%, respectively,
of total segment general and administrative expenses for the year ended December 31, 2005, compared to 88.4% and 11.6%, respectively, for the
year ended December 31, 2004.
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