Reclassification (Notes)

3 Months Ended

Mar. 29, 2020

Accounting Changes and Error Corrections [Abstract]

RECLASSIFICATION

The Company has changed the expense captions on its Condensed Consolidated Statement of Operations effective for the first quarter ended March 29, 2020. These changes were made in order to reflect how the Company manages its business and to communicate where the Company is investing resources and how this aligns with the Company’s strategy. The Company has reclassified expenses for the prior period in order to present comparable financial results. There is no change to consolidated operating income, operating expense, net income or cash flows as a result of this change in classification. A summary of changes is as follows:

“Production costs” has become “Cost of revenue”:

◦

Cost of revenue contains all costs related to content creation, subscriber and advertiser servicing, and print production and distribution costs as well as infrastructure costs related to delivering digital content, which include all cloud and cloud related costs as well as compensation for employees that enhance and maintain our platforms. This represents a change from previously disclosed production costs, which did not include distribution or subscriber servicing costs. In addition, certain product development costs previously included in production costs have been reclassified to product development.

“Selling, general and administrative” has been split into three lines:


◦	Sales and marketing represents all costs related to the Company’s marketing efforts as well as advertising sales costs.


◦	Product development represents the Company’s investment into developing and enhancing new and existing product technology including engineering, product development, and data insights.


◦	General and administrative includes general management, corporate enterprise technology, building operations and unallocated overhead costs.

In addition, incentive compensation, which was previously wholly included in selling, general and administrative, was reclassified to align with the classification of the related wages across each of the expense captions.

A reconciliation of the expenses as previously disclosed to the recast presentation for the quarter ended March 31, 2019, is as follows:



	As Reported March 31, 2019		Reclassification				Recast March 31, 2019
Operating costs
Production costs:
Wages and benefits	$	102,908	$	(102,908	)	⁽¹⁾⁽²⁾	$	—
Raw materials	19,838		(19,838		)	⁽¹⁾	—
Other production costs	45,337		(45,337		)	⁽¹⁾⁽²⁾	—
Total production costs	168,083		(168,083		)	⁽¹⁾⁽²⁾	—
Cost of revenue (excluding depreciation and amortization)	—		239,359			^(1)(3)(4)	239,359
Selling, general and administrative costs	221,463		(221,463		)	^(3)(4)(5)	—
Sales and marketing	—		74,820			⁽⁴⁾⁽⁵⁾	74,820
Product development	—		23,728			^(2)(4)(5)	23,728
General and administrative	—		51,639			⁽⁴⁾⁽⁵⁾	51,639
Depreciation and amortization	14,918		—				14,918
Total operating costs	$	404,464	$	—			$	404,464

⁽¹⁾ In the first quarter of 2020, the Company discontinued the use of the production cost caption. These costs, with the exception of product engineering and product design costs, were reclassified to cost of revenue.

⁽²⁾Costs related to developing and enhancing new and existing product technology previously included in production costs were reclassified to product development.

⁽³⁾Distribution and fulfillment costs and subscriber and advertising servicing related costs previously included in selling, general and administrative were reclassified to cost of revenue.

⁽⁴⁾Incentive Compensation previously included in selling, general and administrative was reclassified to align with the related salaries in each caption.

⁽⁵⁾In the first quarter of 2020, the Company discontinued the use of the selling, general and administrative cost caption. These costs, with the exception of those related to distribution and fulfillment, subscriber and advertising servicing and incentive compensation related to cost of revenue, were reclassified to the new captions: sales and marketing, product development and general and administrative.