Classmates.com 2004 Annual Report Download - page 100

attributable to the expected utilization of net operating loss and tax credit carryforwards in the years ending December 31, 2004 and 2005, offset
by state income taxes. In September 2002, the State of California enacted legislation that suspends the utilization of net operating loss
carryforwards to offset current taxable income for a two-year period beginning in the year ended June 30, 2003. As a result, the Company
recorded a California state income tax provision for the period.
For the year ended June 30, 2003, the Company recorded a tax benefit of $1.8 million on pre-tax income of $26.0 million for an effective
tax rate benefit of 6.8%. The effective tax rate benefit differs from the statutory tax rate primarily due to the release of the valuation allowance
attributable to the actual utilization of net operating loss carryforwards, the benefit of which had not been previously recognized, as well as the
expected utilization of net operating loss and tax credit carryforwards in the period ended June 30, 2004, offset by state income taxes.
In the year ended June 30, 2002, the Company generated a pre-
tax loss of $47.8 million and, as a result, did not record a provision or benefit
for income taxes.
Components of the deferred tax assets, liabilities and related valuation allowance at December 31, 2004 and 2003 are as follows (in
thousands):
The increase in the Company's net deferred tax assets during the year ended December 31, 2004 of $49.8 million is primarily attributable to
the release of the valuation allowance, offset to a certain extent by the current utilization of net operating loss carryforwards and net deferred tax
liabilities recorded in connection with the acquisition of Classmates.
The increase in the Company's net deferred tax assets during the six months ended December 31, 2003 of $18.3 million is primarily
attributable to additional net operating loss carryforwards that are available to offset future taxable income as a result of the issuance of Notice
2003-65 by the Internal Revenue Service, partially offset by the utilization of net operating loss carryforwards and a change in deferred tax
liabilities during the period. Pursuant to Notice 2003-65, taxpayers were permitted to modify the calculation of the annual limitation associated
with acquired net operating loss carryforwards under Internal Revenue Code section 382. As a result, the Company increased its net deferred tax
asset.
The decrease in the valuation allowance of $85.3 million during the year ended December 31, 2004 is primarily attributable to the release of
the valuation allowance due to the expectation that the Company will realize its deferred tax assets in the future. The decrease in the valuation
allowance of $8.2 million during the six months ended December 31, 2003 is primarily due to the expected
F-31
December 31,
2004
2003
Deferred tax assets:
Net operating loss carryforwards
$
93,602
$
114,804
Depreciation and amortization
2,708
6,195
Other
6,390
3,078
Total deferred tax assets
102,700
124,077
Less: valuation allowance
(1,938
)
(87,212
)
Total deferred tax assets
100,762
36,865
Deferred tax liabilities:
Amortization of acquired intangible assets
(24,559
)
(10,052
)
Other
—
(
440
)
Deferred tax liabilities
(24,559
)
(10,492
)
Net deferred tax assets
$
76,203
$
26,373