Classmates.com 2008 Annual Report Download - page 63

Table of Contents
slightly to 9.5% for the year ended December 31, 2008, compared to 8.3% for the prior year period. The increase in expenses was primarily due
to a $5.0 million increase in personnel-related expenses resulting from increased headcount to develop new features related to our social
networking services and a $0.9 million increase in overhead expenses.
Classmates Media General and Administrative Expenses. Classmates Media general and administrative expenses increased by
$7.2 million, or 23.5%, to $38.0 million, for the year ended December 31, 2008, compared to $30.8 million for the year ended December 31,
2007. Classmates Media general and administrative expenses as a percentage of Classmates Media revenues remained relatively stable, with a
slight increase to 16.5% for the year ended December 31, 2008, compared to 15.9% for the prior year period. The increase was primarily related
to a $6.2 million increase in personnel-related expenses, the expensing of $3.9 million in deferred transaction-related costs relating to the
proposed IPO of CMC in the second quarter of 2008 and an increase in overhead-related costs of $2.2 million. These increases were partially
offset by a $3.3 million non-income tax dispute settlement and a $1.9 million decrease in consulting expenses related to audit and executive
search fees incurred in the year ended December 31, 2007 related to our proposed IPO of CMC.
Communications Segment Results
Communications Revenues. Communications revenues decreased by $62.6 million, or 19.6%, to $257.4 million for the year ended
December 31, 2008, compared to $320.1 million for the year ended December 31, 2007. The decrease in Communications revenues was
primarily due to a $54.6 million decrease in services revenues as a result of a 22% decrease in our average number of dial-up Internet access pay
accounts from 2.0 million for the year ended December 31, 2007 to 1.6 million for the year ended December 31, 2008 and, to a lesser extent, a
$1.5 million decrease in services revenues associated with our VoIP business, which we exited in the third quarter of 2007, partially offset by an
increase in services revenues from our broadband services in the year ended December 31, 2008 compared to the year ended December 31, 2007.
The decrease in Communications revenues was also due to an $8.0 million decrease in advertising revenues resulting from a decrease in pay
accounts and termination of a key advertising contract during 2007. We anticipate continued declines in our Communications pay accounts,
which will result in continued declines in Communications revenues.
Communications Cost of Revenues. Communications cost of revenues decreased by $11.4 million, or 16.4%, to $57.9 million, for the
year ended December 31, 2008, compared to $69.3 million for the year ended December 31, 2007. Communications cost of revenues as a
percentage of Communications increased slightly to 22.5% for the year ended December 31, 2008, compared to 21.6% for the prior year period.
The decrease of $11.4 million was primarily due to a $9.8 million decrease in telecommunications costs associated with our dial-up Internet
access services due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account, and lower average hourly
telecommunications costs. In addition, Communications costs of revenues decreased as a result of a $3.5 million decrease in customer support-
and billing-related costs in the year ended December 31, 2008, compared to the year ended December 31, 2007, as a result of a decrease in the
number of dial-up Internet access pay accounts and a decrease in the hourly rate charged by our third-
party vendor and a $2.5 million decrease in
costs associated with our VoIP service as a result of our decision to exit this business in the third quarter of 2007. These decreases were partially
offset by a $6.0 million increase in costs associated with our broadband services due to an increase in the number of broadband pay accounts.
Communications Sales and Marketing Expenses.
Communications sales and marketing expenses decreased by $23.9 million, or 28.4%, to
$60.2 million, for the year ended December 31, 2008, compared to $84.1 million for the year ended December 31, 2007. Communications sales
and marketing expenses as a percentage of Communications revenues decreased to 23.4% for the year ended
61