Classmates.com 2004 Annual Report Download - page 78

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1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES AND RECENT
ACCOUNTING PRONOUNCEMENT
Description of Business
United Online, Inc. ("United Online" or the "Company") is a leading provider of consumer Internet subscription services through a number
of brands, including NetZero, Juno, and Classmates Online. The Company's pay services include dial-up Internet access, community-based
networking, personal Web-hosting, and premium email services, among others. The Company also offers, at no charge, advertising-supported
versions of certain of its services. In addition, the Company offers marketers a broad array of Internet advertising products, including online
market research and measurement services.
United Online is a Delaware corporation that commenced operations in 2001 following the merger of Internet access providers
NetZero, Inc. and Juno Online Services, Inc. (the "Merger"). During 2004, the Company completed the acquisitions of Classmates Online, Inc.
("Classmates"), a leading provider of community-based networking services, and the Web-hosting and domain name registration business of
About Web Services, Inc. The Company's corporate headquarters are located in Woodland Hills, California, and the Company also maintains
offices in Renton, Washington; New York, New York; San Francisco, California; Orem, Utah; Hyderabad, India; Munich, Germany; and
Järfälla, Sweden.
From inception through the year ended June 30, 2002, the Company and NetZero, as the Company's predecessor, incurred operating losses
and reported negative operating cash flows. In the six months ended December 31, 2003 and the year ended June 30, 2003, the Company
reported operating income and positive cash flows from operations. For the year ended December 31, 2004, the Company reported operating
income and cash flows from operations of $79.5 million and $124.0 million, respectively. At December 31, 2004, the Company had cash and
cash equivalents of $56.5 million and short-term investments of $176.3 million. The Company believes that its existing cash, cash equivalents
and short-term investments, and cash generated from operations will be sufficient to fund its working capital requirements, capital expenditures,
repayments on the term loan and other obligations through at least the next twelve months. However, additional capital may be needed in order
to fund the Company's operations, expand marketing activities, develop new or enhance existing services or products, respond to competitive
pressures or acquire complementary services, businesses or technologies.
Basis of Presentation
The accompanying consolidated financial statements for the year ended December 31, 2004, the six months ended December 31, 2003 and
the years ended June 30, 2003 and 2002 include United Online and its wholly-owned subsidiaries. The consolidated financial statements for the
year ended June 30, 2002 reflect the historical consolidated financial results of NetZero, as predecessor to United Online, prior to the Merger and
the consolidated results of United Online subsequent to the Merger. As a result, the results of operations presented for the year ended June 30,
2002 does not include the results of Juno prior to September 25, 2001. All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of the results for the periods shown. The results of operations for such
periods are not necessarily indicative of the results expected for any future periods.
Significant Accounting Policies
Use of Estimates—
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets
F-9