Classmates.com 2007 Annual Report Download - page 55

Download and view the complete annual report

Please find page 55 of the 2007 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 153

  • 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
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153

Communications Product Development Expenses. Communications product development expenses decreased by $7.8 million, or 21%, to
$29.6 million, or 9.3% of Communications revenues, for the year ended December 31, 2007, compared to $37.4 million, or 9.8% of
Communications revenues, for the year ended December 31, 2006. The decrease was primarily the result of a $4.9 million decrease in personnel-
related expenses associated with reduced headcount needs, a $1.8 million decrease in other overhead-related expenses and a $0.8 million
decrease in stock-based compensation. Internal capitalized software development expenses decreased to $6.1 million for the year ended
December 31, 2007, compared to $7.3 million for the year ended December 31, 2006, due to a decrease in the number of development projects in
2007 compared to 2006. We anticipate that Communications product development expenses will decline in 2008 when compared to 2007 as a
result of a restructuring-related reduction in the number of product development employees in this segment in October 2007.
General and Administrative
General and administrative expenses include personnel-related expenses for executive, finance, legal, human resources, facilities, and
internal customer support personnel. In addition, general and administrative expenses include professional fees for legal, accounting and
financial services; office relocation costs; non-income taxes; insurance; occupancy and other overhead-related costs; and expenses incurred and
credits received as a result of certain legal settlements.
We anticipate that general and administrative expenses, in the aggregate and as a percentage of revenues, will increase significantly in 2008
when compared to 2007 at both the consolidated and the segment levels. We anticipate the increase will be primarily as a result of an increase in
stock-based compensation. We expect stock-based compensation to increase as a result of several factors, including: the likelihood that bonuses
for certain members of senior management for the year ending December 31, 2008 (the "2008 Bonuses") will be paid primarily in shares of our
common stock whereas such bonuses were historically paid primarily in cash; the effect of shares of common stock and restricted stock units
awarded in the first quarter of fiscal 2008; and the effect of restricted stock units awarded in 2007 to members of senior management in
connection with the renewal of employment agreements. Also, the resignation of an executive officer in 2007 resulted in the reversal in 2007 of
stock-based compensation recorded in prior periods which reduced stock-based compensation associated with general and administrative
expenses in 2007. The payment of the 2008 Bonuses in shares of common stock as opposed to cash, while increasing stock-based compensation,
is not anticipated to have a significant impact on general and administrative expenses in 2008.
Consolidated General and Administrative Expenses. Consolidated general and administrative expenses increased by $5.8 million, or 9%,
to $73.3 million, or 14.3% of consolidated revenues, for the year ended December 31, 2007, compared to $67.5 million, or 12.9% of
consolidated revenues, for the year ended December 31, 2006. The increase was due to an increase in expenses associated with our Classmates
Media segment, partially offset by a decrease in expenses associated with our Communications segment and a $0.9 million decrease in
depreciation. General and administrative expenses related to our Classmates Media segment and our Communications segment constituted
45.6% and 54.4%, respectively, of total segment general and administrative expenses for the year ended December 31, 2007, compared to 35.1%
and 64.9%, respectively, for the year ended December 31, 2006.
Classmates Media General and Administrative Expenses. Classmates Media general and administrative expenses increased by
$9.4 million, or 44%, to $30.8 million, or 15.9% of Classmates Media revenues, for the year ended December 31, 2007, compared to
$21.3 million, or 15.3% of Classmates Media revenues, for the year ended December 31, 2006. The increase was primarily related to expenses
associated with our loyalty marketing service, which we acquired in April 2006 and which was included in our results of operations for the full
year ended December 31, 2007 compared to only 266 days for the year ended December 31, 2006. General and administrative expenses
associated with
52